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The Economic Policy Uncertainty Extreme Dynamics And Its Effect On The Exchange Rate

Author

Listed:
  • 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)

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.

Suggested Citation

  • Raheel Gohar & Mohamed Osman & Emmanuel Uche & P. A. Mary Auxilia & Bisharat Hussain Chang, 2022. "The Economic Policy Uncertainty Extreme Dynamics And Its Effect On The Exchange Rate," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 22(03), pages 1-22, September.
    • Handle: RePEc:wsi:gejxxx:v:22:y:2022:i:03:n:s2194565923500069
    DOI: 10.1142/S2194565923500069
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    Citations

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    Cited by:

    1. Ennadifi Imane & Bisharat Hussain Chang & Tarek Abbas Elsherazy & Wing-Keung Wong & Mohammed Ahmar Uddin, 2023. "The External Exchange Rate Volatility Influence on The Trade Flows: Evidence from Nonlinear ARDL Model," Advances in Decision Sciences, Asia University, Taiwan, vol. 27(2), pages 75-98, June.
    2. Bisharat Hussain Chang & Khalil Ahmed Channa & Emmanuel Uche & Osamah Ibrahim Khalaf & Osamah Waheed Ali, 2022. "Analyzing the impacts of terrorism on innovation activity: A cross country empirical study," Advances in Decision Sciences, Asia University, Taiwan, vol. 26(Special), pages 124-161, December.
    3. Huo, Dongxia & Bagadeem, Salim & Elsherazy, Tarek Abbas & Nasnodkar, Siddhesh Prabhu & Kalra, Akash, 2023. "Renewable energy consumption and the rising effect of climate policy uncertainty: Fresh policy analysis from China," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1459-1474.
    4. Lu, Man & Chang, Bisharat Hussain & Salman, Asma & Razzaq, Muthanna G. Abdul & Uddin, Mohammed Ahmar, 2023. "Time varying connectedness between foreign exchange markets and crude oil futures prices," Resources Policy, Elsevier, vol. 86(PB).

    More about this item

    Keywords

    E7 countries; MTNARDL model; Â NARDL model; exchange rates; economic policy uncertainty;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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