Theoretical and Applied Economics
No. 3 / 2017 (612), Autumn
Causality between economic policy uncertainty and exchange rate in China with considering quantile differences
Ocean University of China, Qingdao, Shandong, China
Jing-wen ZHANG
College of Finance and Statistics, Hunan University, Changsha, China
Xiu-zhen YU
Qingyang Municipal Sub-branch PBC, Qingyang, Gansu, China
Xin LI
Antai College of Economics & Management, Shanghai Jiao Tong University, Shanghai, China
Abstract. Under an existing theoretical framework regarding the relationship between investment decision and the size of economic policy uncertainty (EPU), this paper tests the causality between EPU and exchange rate (ER). Theoretically, the impact of EPU on ER should be treated asymmetrically since investors need higher risk premiums to offset the consequences of growing EPU. The causality is investigated by using the quantile Granger causality test. This test shows that causality is more significant in the tail quantile interval. Since EPU of China is extremely high since 2016, and ER also experienced huge fluctuations during this period, our result provides an empirical basis for international investors to protect themselves against the risks associated with EPU in the exchange market.
Keywords: economic policy uncertainty; exchange rate; quantile causality.
Contents
- The European Union's strategy for increasing the living conditions of the population in the member states
Constantin ANGHELACHE
Mădălina Gabriela ANGHEL
- Does institutional environment
affect the economic development?
Evidence from selected CEE countries
Lejla TERZIĆ
- Causality between economic policy uncertainty and exchange
rate in China with considering quantile differences
Yin DAI
Jing-wen ZHANG
Xiu-zhen YU
Xin LI
- What impact has free trade area on economies of ASEAN-5 countries?
Abidin ÖNCEL
Raisal Fahrozi LUBİS
- Hard currency inflows and sterilization policy in Algeria:
An ARDL approach
Aissa DJEDAIET
Hicham AYAD
- Evaluating Indian economy’s vulnerability
to currency crisis
Mohana Rao BALAGA
Puja PADHI
- Does fiscal policy spur economic growth?
Empirical evidence from Algeria
Amal MATALLAH
Siham MATALLAH