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Optimistic and pessimistic economic sentiments and US Dollar exchange rate

Author

Listed:
  • Sonia Kumari

    (Sukkur IBA University, Sukkur, Sindh, Pakistan)

  • Suresh Kumar Oad Rajput

    (Sukkur IBA University, Sukkur, Sindh, Pakistan)

  • Rana Yassir Hussain

    (��Department of Economics and Business Administration, University of Education Lahore, Pakistan)

  • Jahanzeb Marwat

    (Sukkur IBA University, Sukkur, Sindh, Pakistan)

  • Haroon Hussain

    (��Noon Business School, University of Sargodha, Pakistan)

Abstract

This study investigates the affiliation of various proxies of economic sentiments and the US Dollar exchange rate, mainly focusing on the real effective exchange rate of USD pairing with three other major currencies (USDEUR, USDGBP, and USDCAD). The study has employed Google Trends data of economy optimistic and pessimistic sentiments index and survey-based economy sentiments data on monthly basis from January 2004 to December 2018. The study engaged Ordinary Least Squares (OLS) and Auto-Regressive Distributed Lag (ARDL) estimation techniques to evaluate the short-run and long-run effects of economy-related sentiments and macroeconomic variables on the exchange rate. The results from the study found that Economy Optimistic Sentiments Index (EOSI) and Economy Pessimistic Sentiments Index (EPSI) appreciate and depreciate the US Dollar exchange rate in the short-run, respectively. Our sentiment measures are robust to survey-based Michigan Consumer Sentiment Index (MSCI), Consumer Confidence Index (CCI), and various macroeconomic factors. The MSCI and CCI sentiments show a long-term impact on the foreign exchange market. This study implies that economic sentiments play a vital role in the foreign exchange market and it is essential to consider behavioral aspects when modeling the exchange rate movements.

Suggested Citation

  • Sonia Kumari & Suresh Kumar Oad Rajput & Rana Yassir Hussain & Jahanzeb Marwat & Haroon Hussain, 2022. "Optimistic and pessimistic economic sentiments and US Dollar exchange rate," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 9(04), pages 1-30, December.
    • Handle: RePEc:wsi:ijfexx:v:09:y:2022:i:04:n:s2424786321500432
    DOI: 10.1142/S2424786321500432
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    Citations

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    Cited by:

    1. Jian Wang & Xuying Yang & Sonia Kumari, 2023. "Investigating the Spatial Spillover Effect of Transportation Infrastructure on Green Total Factor Productivity," Energies, MDPI, vol. 16(6), pages 1-18, March.

    More about this item

    Keywords

    Economic optimistic sentiments index; economic pessimistic sentiments index; real effective exchange rate; macroeconomic factors; ARDL;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G4 - Financial Economics - - Behavioral Finance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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