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کد محصول: H758
سال نشر: ۲۰۲۲
نام ناشر (پایگاه داده): الزویر
نام مجله: International Review of Economics and Finance
نوع مقاله: علمی پژوهشی (Research articles)
تعداد صفحه انگلیسی: ۱۲ صفحه PDF
عنوان کامل فارسی:
مقاله انگلیسی ۲۰۲۲ : ریسک های ژئوپلیتیکی (جغرافیای سیاسی) و سوابق نوسانات نرخ ارز در کشورهای BRICS
عنوان کامل انگلیسی:
Geopolitical risks and historical exchange rate volatility of the BRICS
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Abstract
The predictability of geopolitical risks (GPR) for exchange rate volatility of the BRICS is examined using both historical and recent GPR data. Relying on the GARCH-MIDAS-X model based on available data frequencies, we find that the BRICS exchange rates are more vulnerable to recent GPR data than the historical data. Additional analysis suggests contrasting evidence between the recent global GPR data and the country-specific GPR data implying that the BRICS exchange rates are more vulnerable to global than domestic GPR. Finally, we document some out-of-sample economic gains of accounting for GPR in the valuation of foreign exchange portfolio.
Keywords: Geopolitical risk, Exchange rate volatility, BRICS, GARCH-MIDAS-X , Forecast evaluation
۱.Introduction
Geopolitical risks (GPR), broadly defined as the risk associated with wars, terrorist acts, and tensions between states that affect the normal and peaceful course of international relations (Caldara & Iacoviello, 2019) are considered key determinants of investment decisions and financial market dynamics (Berkman et al., 2011; Huang et al., 2015; Pastor & Veronesi, 2013), and thus, they will certainly exert movements in the exchange rate market, which is the largest and most liquid financial market in the world with around $6.6trn traded per day in 2019 (Bank of International Settlements, BIS, 2019). For example, after the Russian invasion of the Crimea in 2014, the Russian ruble lost half of its value against the dollar within that year, causing an increase in the exchange rate volatility of this currency. Exchange rate volatility has been a topic of interest in the academic literature, since exchange rate volatility is a key feature for option pricing, financial market regulation, investment or hedging decisions (Caporale et al., 2015; Christoffersen & Diebold, 2006; Eun & Resnick, 1988; Fidora et al., 2007; Hansen & Lunde, 2005), so that many empirical attempts to forecast exchange rate volatility are found in the literature (Diebold & Nerlove, 1989; Hansen & Lunde, 2005; Benavides & Capistr´an, 2012; Barunik et al., 2016; Rapach & Strauss, 2008)…
۵.Conclusion
In this paper, we examine the vulnerability of the BRICS exchange rates to geopolitical risks (GPR) using alternative measures for GPR ranging from global (historical and recent) data to country-specific GRP data. Two are the main objectives of the paper: first, to test the predictability of GPR for exchange rate volatility; second, to further evaluate the out-of-sample predictability of GPR based using multiple forecast horizons to obtain the forecasts. We construct a GARCH-MIDAS-X model in order to accommodate available data frequencies, such as daily exchange rate data with monthly GPR data. Using the long range data, from January 1899 to August 2020, we find that, on average, the BRICS exchange rates are less vulnerable to geopolitical risks, however, recent (short range) data, from January 1985 to August 2020, suggest otherwise. We also find contrasting evidence between the recent global GPR data and the country-specific GPR data implying that the BRICS exchange rates are more vulnerable to global than domestic (country-specific) geopolitical risks in recent times while China seems to be the least vulnerable. The GARCH-MIDAS model that accounts for the GPR data outperforms the benchmark (the conventional GARCH-MIDAS model without the GPR predictor) both for the in-sample and outof- sample forecasts. When the analysis is replicated for a more developed (open) economy, the conclusion about the vulnerability of exchange rates to geopolitical risks in recent times is upheld. The incorporation of GPR proxies are also relevant economically in the prediction of BRICS countries exchange rate volatility…