ScienceDirect Publication: Finance Research Letters
Wed, 04 Dec 2019 00:01:39 GMT language
Publication date: Available online 29 November 2019
Source: Finance Research Letters
Author(s): Abir Abid
We revisit the association between fundamentals and exchange rates in emerging markets relying on the role of the Economic Policy Uncertainty (EPU) in explaining /forecasting currency movements. Using ARDL model, we show that EPU plays a key role in explaining exchange rates in short and long runs. We also find that the EPU improves the forecasting power of macroeconomic models of exchange rate in both horizons. Our findings provide an empirical justification of the scapegoat theory.