This study examines the effects of geopolitical risk on exchange rates in Indonesia and South Korea. We augment theoretical exchange rate models from the literature with the geopolitical risk index of Caldara and Iacoviello (2017), and then estimate these models using the ARDL approach to Cointegration. We find evidence of Cointegration in both countries. While geopolitical risk consistently turns out to be a statistically significant long-run driver of exchange rates in Indonesia, the case is less conclusive for South Korea. We offer some practical implications.
|Number of pages||8|
|Journal||The Empirical Economics Letters|
|Publication status||Published - Jan 2021|