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EPU spillovers and exchange rate volatility

Author

Listed:
  • Gong, Yuting
  • He, Zhongzhi
  • Xue, Wenjun

Abstract

This paper examines the spillover effect of economic policy uncertainty (EPU) on real effective exchange rate volatility in a sample of 23 countries. We use a multivariate quantile model to measure EPU spillovers for each country and find that EPU spillovers have a significant and positive effect on subsequent exchange rate volatility in both developed and emerging markets. The spillover effect is stronger in emerging markets compared to developed markets. EPU spillovers generated from developed markets are larger than those originated from emerging markets. The EPU spillover effect is particularly strong during the period of global financial crisis. The positive relationship between EPU spillovers and exchange rate volatility remains significant in various robustness checks.

Suggested Citation

  • Gong, Yuting & He, Zhongzhi & Xue, Wenjun, 2025. "EPU spillovers and exchange rate volatility," International Review of Financial Analysis, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:finana:v:97:y:2025:i:c:s1057521924007567
    DOI: 10.1016/j.irfa.2024.103824
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    Keywords

    EPU spillovers; Multivariate quantile model; Exchange rate volatility;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General

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