Measuring exchange rate risks during periods of uncertainty

Laurent Ferrara and Joseph Yapi

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: In this paper, we empirically look at the effects of uncertainty on risk measures for exchange rates, by focusing on two recent specific periods: the Brexit and the outbreak of the Covid-19. Based on a Fama regression extended with uncertainty measures, we forecast exchange rate in the short run through a quantile regression approach. By fitting a Skewed-Student distribution to the quantile forecasts, we put forward measures of risks for appreciation and depreciation of the expected exchange rates. We point out two interesting results. First, we show that the increase in Brexit-related uncertainty is strongly associated to higher future depreciation risks of the British Pound vs the Euro, as a mistrust towards the British economy. Second, we get that the Covid-related uncertainty is perceived as a global risk, leading to a flight-to-safety move towards the US Dollar and associated high depreciation risks for emerging currencies.

Keywords: Exchange rate; Risk measures; Fama regression; Uncertainty; Covid-19 crisis; Brexit (search for similar items in EconPapers)
JEL-codes: C22 C53 F31 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2020-06
New Economics Papers: this item is included in nep-mon and nep-rmg
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Related works:
Journal Article: Measuring exchange rate risks during periods of uncertainty (2022)
Journal Article: Measuring exchange rate risks during periods of uncertainty (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2020-60

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