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An Investigation of the Impact of COVID-19 Non-Pharmaceutical Interventions and Economic Support Policies on Foreign Exchange Markets with Explainable AI Techniques

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  • Siyuan Liu
  • Mehmet Orcun Yalcin
  • Hsuan Fu
  • Xiuyi Fan

Abstract

Since the onset of the the COVID-19 pandemic, many countries across the world have implemented various non-pharmaceutical interventions (NPIs) to contain the spread of virus, as well as economic support policies (ESPs) to save their economies. The pandemic and the associated NPIs have triggered unprecedented waves of economic shocks to the financial markets, including the foreign exchange (FX) markets. Although there are some studies exploring the impact of the NPIs and ESPs on FX markets, the relative impact of individual NPIs or ESPs has not been studied in a combined framework. In this work, we investigate the relative impact of NPIs and ESPs with Explainable AI (XAI) techniques. Experiments over exchange rate data of G10 currencies during the period from January 1, 2020 to January 13, 2021 suggest strong impacts on exchange rate markets by all measures of the strict lockdown, such as stay at home requirements, workplace closing, international travel control, and restrictions on internal movement. Yet, the impact of individual NPI and ESP can vary across different currencies. To the best of our knowledge, this is the first work that uses XAI techniques to study the relative impact of NPIs and ESPs on the FX market. The derived insights can guide governments and policymakers to make informed decisions when facing with the ongoing pandemic and a similar situation in the near future.

Suggested Citation

  • Siyuan Liu & Mehmet Orcun Yalcin & Hsuan Fu & Xiuyi Fan, 2021. "An Investigation of the Impact of COVID-19 Non-Pharmaceutical Interventions and Economic Support Policies on Foreign Exchange Markets with Explainable AI Techniques," Papers 2111.14620, arXiv.org.
    • Handle: RePEc:arx:papers:2111.14620
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    References listed on IDEAS

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    1. Aslam, Faheem & Aziz, Saqib & Nguyen, Duc Khuong & Mughal, Khurrum S. & Khan, Maaz, 2020. "On the efficiency of foreign exchange markets in times of the COVID-19 pandemic," Technological Forecasting and Social Change, Elsevier, vol. 161(C).
    2. Afees A. Salisu & Oluwatomisinn Oyewole & Ismail O. Fasanya, 2017. "Modelling Return and Volatility Spillovers in Global Foreign Exchange Markets," Working Papers 030, Centre for Econometric and Allied Research, University of Ibadan.
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    Cited by:

    1. Davood Pirayesh Neghab & Mucahit Cevik & M. I. M. Wahab, 2023. "Explaining Exchange Rate Forecasts with Macroeconomic Fundamentals Using Interpretive Machine Learning," Papers 2303.16149, arXiv.org.

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