On the Exchange Rates Volatility and Economic Policy Uncertainty Nexus: A Panel VAR Approach for Emerging Markets

Abir Abid () and Christophe Rault
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Abir Abid: COGI - Comportements, Organisations et Gouvernance des Institutions - UCO - Université Catholique de l'Ouest

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Abstract: We examine the Economic Policy Uncertainty (EPU) transmission over the Exchange Rate Volatility (ERV) for 8 Emerging Market Economies (EME) using the recent panel VAR methodology of Abrigo and Love (Stata Journal 16:778–804, 2016). The econometric investigation reveals that: (a) both domestic and US-EPU shocks exert positive effects on the ERV, (b) the contribution of the US-EPU to the ERV fluctuations overcomes the own EPU's share, (c) the ERV acts as a pos- sible transmission channel of the US-EPU to the domestic economic activity, (d) the domestic EPU increases in response to a higher US-EPU and vice versa and (e) the latter is surprisingly and markedly sensitive to EME macroeconomic conditions. Our findings are robust to different sensitivity analyses, provide novel insights into EPU international spillovers, and have interesting policy implications for EME deci- sions makers and investors.

Keywords: Emerging market economies; Economic Policy Uncertainty; Exchange Rates volatility; Panel VAR (search for similar items in EconPapers)
Date: 2021
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Published in Journal of Quantitative Economics, 2021

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05295005

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