Economic uncertainty and exchange rates linkage revisited: modelling tail dependence with high frequency data

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

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Abstract: The aim of this paper is to dig deeper into understanding the exchange rates and uncertainty dependence. Using the novel Baker et al. (2020)'s daily Twitter Uncertainty Index and BRICS exchange rates, we investigate their extreme tail dependence within an original time-varying copula framework. Our analysis makes several noteworthy results. Evidence for Indian, Russian and South African currencies indicates an elliptical copulas' dominance implying neither asymmetric features nor extreme movements in their dependence structure with the global economic uncertainty. Importantly, Brazilian and Chinese currencies tail dependence is upward trending suggesting a safe-haven role in times of high global economic uncertainty including the recent COVID-19 pandemic. In such circumstances, these markets offer opportunities to significant gains through portfolio diversification.

Keywords: Economic Uncertainty; Emerging Economies; Exchange Rates; Copula models; Tail Dependence (search for similar items in EconPapers)
Date: 2020
Note: View the original document on HAL open archive server: https://hal.science/hal-05292506v1
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