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Modeling the Asymmetric Relationship between the Covid-19 and the U.S Dollar Exchange Rate: an Empirical Analysis via the NARDL Approach

Benzid, Lamia and Bakari, Sayef (2021): Modeling the Asymmetric Relationship between the Covid-19 and the U.S Dollar Exchange Rate: an Empirical Analysis via the NARDL Approach.

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Abstract

This research paper analyses the extent to which Covid-19 changes hold an asymmetric impact on the US dollar exchange rate for the period starting from the 01st March 2020 to the 28th of August 2020. In order to attain this objective, an asymmetric nonlinear co-integration approach (NARDL) is applied. As a matter of fact the results evidence three findings. First, we find a long-run co-integrating relationship between the US dollar exchange rate and the Covid-19 (number of cases and number of deaths). Second, in this relationship, the long-run asymmetry runs from the number of cases to the US dollar exchange rate, a finding that is statistically robust as the parameters of the NARDL models are stable with well-behaved errors. Third, we reveal that the number of deaths has no asymmetric impact on the US dollar exchange rate, which implies the fact that both a positive and a negative number of deaths, movements have the same impacts on the US dollar exchange rate in the short-run and long-run. Therefore, this study recommended that the American government must take nonlinear decisive actions to deal with the health and economic crises in the face of major uncertainty.

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