Exploring the Impact of COVID-19 on Exchange Rate Volatility: Evidence from South Asia
18 Pages Posted: 8 Nov 2022
Date Written: 2022
Abstract
Exchange rate is the price of one country’s currency in terms of another and it is a key macroeconomic factor that affects a country’s international trade. Volatile exchange rate is a major concern for policymakers and not desirable as it makes international trade and investment decision more difficult due to exchange rate risk. This paper adopts an MGARCH model to explore the impact of COVID-19 cases on the volatility of the USD exchange rates against the local currencies of Bangladesh (BDT), India (INR), and Pakistan (PKR) where the prices of oil and gold are taken as control variables. The empirical investigation reveals a positive and significant effect of COVID-19 cases on the volatility of the USD exchange rate against BDT, INR, and PKR. Additionally, this paper forecasts the daily volatility of the USD exchange rate concerning all three currencies.
Keywords: COVID-19, Exchange rate volatility, MGARCH, Forecasting
JEL Classification: C53, G13, G15, C22
Suggested Citation: Suggested Citation