THE ECONOMIC POLICY UNCERTAINTY EXTREME DYNAMICS AND ITS EFFECT ON THE EXCHANGE RATE

Raheel Gohar (), Mohamed Osman (), Emmanuel Uche (), P. A. Mary Auxilia () and Bisharat Hussain Chang
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Raheel Gohar: College of Business Administration, Al Yamamah University, Riyadh, Saudi Arabia
Mohamed Osman: Dubai Business School, University of Dubai, Dubai, UAE
Emmanuel Uche: Department of Economics, Abia State University, Uturu, Abia State, Nigeria
P. A. Mary Auxilia: Loyola Institute of Business Administration, Chennai, Tamil Nadu, India
Bisharat Hussain Chang: Department of Business Administration, Sukkur IBA University, Sukkur, Pakistan

Global Economy Journal (GEJ), 2022, vol. 22, issue 03, 1-22

Abstract: The effect of economic policy uncertainty (EPU) on other macroeconomic and financial variables has been the subject of prior research investigations. However, a dearth of work explicitly examines the connection between EPU exchange rate changes. By utilizing both nonlinear ARDL (NARDL) and multiple threshold NARDL (MTNARDL) models, we add to the body of literature by analyzing the nonlinear impact of EPU on exchange rates. The MTNARDL model, which distinguishes between the impacts of very small changes in the EPU from very large changes in the EPU on the exchange rate, is an expanded version of the NARDL model. The MTNARDL results confirm an asymmetric effect of EPU on exchange rates in the long run for all sample countries, contrary to the NARDL estimates, which show that EPU has an asymmetric effect in Brazil, Turkey, and China only. Similarly, only one country is supported by NARDL estimates for the short-run asymmetric effect, but MTNARDL estimates support the effect in five countries. Therefore, in our study, the MTNARDL model aids the prior literature in examining the more comprehensive impact of EPU on the exchange rates.

Keywords: E7 countries; MTNARDL model; Â NARDL model; exchange rates; economic policy uncertainty (search for similar items in EconPapers)
JEL-codes: C22 E44 G15 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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DOI: 10.1142/S2194565923500069

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