Exploring the Influence of Economic Policy Uncertainty on the Volatility of Exchange Rates

Abstract: The extent to which Economic Policy Uncertainty (EPU) influences exchange rate volatility has progressively become one of the popular issues that economists have devoted their efforts to studying in recent years. In this study, daily and monthly exchange rate data for USD/GBP are selected, and regression analysis using the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) estimation model is employed to explore the difference between the impact of EPU and non-economic policies on exchange rate fluctuations. The experimental results indicate that using daily data is more appropriate than monthly data for estimating EPU, and non-policy uncertainty outweighs the impact of EPU on exchange rate volatility. This finding provides important insights into the factors driving exchange rate fluctuations, offering substantial implications for formulating effective economic policies and risk management strategies. These research findings contribute not only to the academic understanding of international financial markets but also serve as a valuable reference for policymakers in better addressing the challenges posed by economic uncertainty on exchange rate stability.

Keyword: EPU; Exchange Rate Volatility; Non-Policy Uncertainty; GARCH Model.

Title: Exploring the Influence of Economic Policy Uncertainty on the Volatility of Exchange Rates

Author: Fenghua Zhang, Zhibin Zhou, Jing Xu

International Journal of Recent Research in Commerce Economics and Management (IJRRCEM)

ISSN 2349-7807

Vol. 11, Issue 1, January 2024 - March 2024

Page No: 96-104

Paper Publications 

Website: www.paperpublications.org

Published Date: 16-February-2024

DOI: https://doi.org/10.5281/zenodo.10669691

Paper Download Link (Source)

https://www.paperpublications.org/upload/book/Exploring%20the%20Influence%20of%20Economic-16022024-1.pdf