The Impact of COVID-19 on Exchange Rate Volatility: Evidence Through GARCH Model

Abstract

This paper employs a GARCH (1,1) model to investigate the impact of COVID-19 cases and related deaths in the US exchange rate volatility. Results show that an increase of the number of cases and the deaths (both in logs) in the US has a positive impact on the USD/EUR, USD/Yuan and USD/LivreSterling. Moreover, this paper uses GARCH (1,1) model to forecast the daily volatility of three exchange rates series with respect to American dollar. These results are useful for anyone needing forecasts of exchange rate futures volatility.

Keywords: COVID-19, Exchange rate volatility, GARCH (1, 1), Forecasting

JEL Classification: C53, G13, G15, C22