Stabilizing global foreign exchange markets in the time of COVID-19: The role of vaccinations

Son Pham; Thao T.T. Nguyen; Xiao-Ming Li

doi:10.1016/j.gfj.2023.100923

Stabilizing global foreign exchange markets in the time of COVID-19: The role of vaccinations

Son Pham^* (Corresponding Author), Thao T.T. Nguyen, Xiao-Ming Li

^*Corresponding author for this work

Accountancy & Finance, Finance

Massey University

Research output: Contribution to journal › Article › peer-review

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Abstract

By restoring economic openness, mitigating economic policy uncertainty, and regaining macroeconomic stability, the mass deployment of COVID-19 vaccinations should stabilize foreign exchange (FX) markets. This paper empirically examines the impact of COVID-19 vaccinations on the realized volatility of exchange rates in 30 countries/regions from January 1, 2020, to September 29, 2021. Using the heterogeneous autoregressive model with measurement errors, we find that the COVID-19 vaccine rollout stabilizes global FX markets; this result holds through a series of robustness checks. The stabilizing effect is asymmetric across the quantile levels of FX volatility distribution. Furthermore, the stabilizing effect is more pronounced in emerging markets, countries with high economic policy uncertainty, and nations with greater vaccine confidence.

Original language	English
Article number	100923
Number of pages	32
Journal	The Global Finance Journal
Volume	59
Early online date	12 Dec 2023
DOIs	https://doi.org/10.1016/j.gfj.2023.100923
Publication status	Published - 1 Mar 2024

Bibliographical note

Acknowledgements
We are grateful to the managing editor, Professor Ali M. Fatemi, and two anonymous referees for valuable comments and suggestions. All remaining errors are our own.

Data Availability Statement

The authors do not have permission to share data.

Keywords

COVID-19 vaccinations
Exchange rate volatility
Realized volatility
Heterogeneus autoregressive model
Measurement errors

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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Cite this

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abstract = "By restoring economic openness, mitigating economic policy uncertainty, and regaining macroeconomic stability, the mass deployment of COVID-19 vaccinations should stabilize foreign exchange (FX) markets. This paper empirically examines the impact of COVID-19 vaccinations on the realized volatility of exchange rates in 30 countries/regions from January 1, 2020, to September 29, 2021. Using the heterogeneous autoregressive model with measurement errors, we find that the COVID-19 vaccine rollout stabilizes global FX markets; this result holds through a series of robustness checks. The stabilizing effect is asymmetric across the quantile levels of FX volatility distribution. Furthermore, the stabilizing effect is more pronounced in emerging markets, countries with high economic policy uncertainty, and nations with greater vaccine confidence.",

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AB - By restoring economic openness, mitigating economic policy uncertainty, and regaining macroeconomic stability, the mass deployment of COVID-19 vaccinations should stabilize foreign exchange (FX) markets. This paper empirically examines the impact of COVID-19 vaccinations on the realized volatility of exchange rates in 30 countries/regions from January 1, 2020, to September 29, 2021. Using the heterogeneous autoregressive model with measurement errors, we find that the COVID-19 vaccine rollout stabilizes global FX markets; this result holds through a series of robustness checks. The stabilizing effect is asymmetric across the quantile levels of FX volatility distribution. Furthermore, the stabilizing effect is more pronounced in emerging markets, countries with high economic policy uncertainty, and nations with greater vaccine confidence.

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KW - Realized volatility

KW - Heterogeneus autoregressive model

KW - Measurement errors

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Stabilizing global foreign exchange markets in the time of COVID-19: The role of vaccinations

Abstract

Bibliographical note

Data Availability Statement

Keywords

UN SDGs

Access to Document

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Cite this