Migration fears and exchange rate volatility in France, Germany, and the UK: A GARCH-MIDAS framework

Olaniran, Abeeb and Akanni, Lateef and Salisu, Afees (2024): Migration fears and exchange rate volatility in France, Germany, and the UK: A GARCH-MIDAS framework.

Abstract

We explore the role of fear associated with migration in predicting exchange rate volatility of Germany, France, and the United Kingdom within the context of the generalized autoregressive conditional heteroscedastic (GARCH) mixed-data-sampling (MIDAS) framework using United States dollar (USD) as the reference currency. While we adopt the quarterly Migration Fear Index and daily exchange rate of Euro (for France and Germany) and GBP (for the UK) to USD for the nexus between migration anxiety and exchange rate volatility, we equally augment our model with Migration Policy Uncertainty (MPU) to examine the joint predictability of the two migration fears proxies on exchange rate volatility. We conduct an empirical analysis that covers the full sample period which is further partitioned into pre- and post-GFC periods to see if the nexus is sensitive to crises periods. We find evidence of migration fears predicting exchange rate volatility of the G-3 country considered, given the statistical significance of our model’s slope coefficient. Although the influence of migration fears on the strengths of the euro and pounds relative to the USD differ, as migration fear causes the former to depreciate and the latter to appreciate, both currencies exhibit high volatility persistence during the period under scrutiny. Our findings have implications for policy-makers on whose shoulders the responsibility of exchange rate management falls.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exchange rate, Migration, Fear, GARCH-MIDAS
• Subjects: J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers

References

Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The quarterly journal of economics, 131(4), 1593-1636.

Baas, T., Brücker, H., & Hauptmann, A. (2009). Labor mobility in the enlarged EU: Who wins, who loses? In EU labor markets after post-enlargement migration (pp. 47-70). Berlin, Heidelberg: Springer Berlin Heidelberg.

Blanchflower, D. G., & Shadforth, C. (2009). Fear, unemployment, and migration. The Economic Journal, 119(535), F136-F182. Constant, A. F. (2011). Sizing it up: Labor migration lessons of the EU enlargement to 27.

Czudaj, R. L. (2018). Is equity market volatility driven by migration fear? Finance Research Letters, 27, 34-37.

De Haas, H. (2005). International migration, remittances, and development: myths and facts. Third world quarterly, 26(8), 1269-1284.

Donadelli, M., Gerotto, L., Lucchetta, M., & Arzu, D. (2020). Immigration, uncertainty, and macroeconomic dynamics. The World Economy, 43(2), 326-354.

Farbenblum, B., & Berg, L. (2018). Wage Theft in Silence: Why migrant workers do not recover their unpaid wages in Australia. UNSW Law Research Paper, (19-1).

Gao, Y. (2015). The Impact of Exchange Rate Fluctuations on Labor Migration: Evidence from US Nonimmigrant Visa Statistics.

Guenichi, H., Chouaibi, N., & Khalfaoui, H. (2022). The contagion effect of migration fear in pre and European refugee crisis period: evidence from multivariate GARCH and wavelet empirical analysis. Comparative Migration Studies, 10(1), 1-20.

Kahanec, M., Zaiceva, A., & Zimmermann, K. F. (2009). Lessons from migration after EU enlargement. In EU labor markets after post-enlargement migration (pp. 3-45). Berlin, Heidelberg: Springer Berlin Heidelberg.

Kahanec, M., & Zimmermann, K. F. (2016). EU post-enlargement migration and the Great Recession: lessons and policy implications. Labor migration, EU enlargement, and the Great Recession, 419-445.

Khoudour-Castéras, D. (2005). Exchange rate regimes and labor mobility: The key role of international migration in the adjustment process of the classical Gold Standard. Colombia: Universidad Externado de Colombia. Retrieved from http://barthes. ens. fr/clio/seminaires/himmig/gold. pdf.

Kocak, E., & Yucel, A. G. (2022). Does migration fear affect tourism demand? Evidence from instrumental variable cointegration test. Tourism Economics, 13548166221128078.

Korus, A., & Celebi, K. (2019). The impact of Brexit news on British pound exchange rates. International Economics and Economic Policy, 16, 161-192.

Liu, K. (2011). Impact of Rural-to-Urban Migration on Agricultural Commodity Inflation in China. Journal of Agricultural Economics, 1-40.

Łaciak, B., & Segeš Frelak, J. (2018). The Wages of Fear. Attitudes towards Refugees and Migrants in Poland, Warsaw.

Salisu, A. A., Muhammad, R. A., & Saliu, M. O. (2024). Migration and inflation nexus under high and low interest rate environments: Some panel data evidence. International Migration, 62(6), 59-77.

Salisu, A. A., Ogbonna, A. E., Lasisi, L., & Olaniran, A. (2022). Geopolitical risk and stock market volatility in emerging markets: A GARCH–MIDAS approach. The North American Journal of Economics and Finance, 62, 101755.

Salisu, A. A., Olaniran, A. O., & Vo, X. V. (2024). Migration fears and housing affordability in France, Germany, the UK and the USA and the mediating role of interest rate. International Journal of Housing Markets and Analysis.

Salisu, S., & Salisu, A. (2024). A New Index for Climate-Induced Migration Uncertainty. Available at SSRN 4653203.

Singer, D. A. (2010). Migrant remittances and exchange rate regimes in the developing world. American Political Science Review, 104(2), 307-323.