Relationship of global geopolitical risk and exchange rates: Evidence from Covid-19 and Russia–Ukraine crisis, January 2020–August 2022
Relationship of global geopolitical risk and exchange rates: Evidence from Covid-19 and Russia–Ukraine crisis, January 2020–August 2022

Summary/Abstract: The recent health crisis and Russia–Ukraine conflict have had an impact on countries around the world. Foreign exchange rate markets have been considerably influenced. The author examine the dynamic interaction over crises between geopolitical risk (GPR) and major exchange rate markets. The asymmetric impact of geopolitical risk and major exchange rates was discovered utilizing a novel time-varying Granger causality approach. The sample includes noteworthy occurrences such as Covid-19 and the ongoing conflict between Russia and Ukraine. The empirical findings uncover bidirectional causality, with geopolitical risks significantly influencing exchange rate markets during Covid-19 and the beginning of the Russia–Ukraine war. However, this phenomenon became weaker as the Russia–Ukraine war continued, which could show that GPR and exchange rate markets were not linked during the Russia–Ukraine war. This research has important implications that may be advantageous to forex investors, helping them make a variety of investment decisions in such turbulent times. Certain policy choices may be advantageous to banks, global organizations, institutional investors, and policy-makers.

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