COVID-19 pandemic, Russian-Ukrainian war and REER volatility: Evidence from panel of countries

Abstract

This article aims to empirically study the effect of the COVID-19 pandemic and the Russian-Ukrainian war on the volatility of the real effective exchange rate (REER) using panel data from 23 advanced, emerging, and developing economies. The study covers the period from January 2020 to October 2022. The ARCH/GARCH model is used to estimate the monthly REER volatility for each monetary zone. The impact of the COVID-19 pandemic is measured by the monthly Covid- 19 deaths, while the Russian-Ukrainian war is measured using two factors: monthly oil prices in USD and the monthly food price index. Consequently, two models are developed: the first one measure the impact of the COVID-19 deaths and the oil prices, while the second assesses the impact of the COVID-19 deaths and the food price index on the REER volatility. In both models, the long-term results suggest that the COVID-19 pandemic and the Russian-Ukrainian war have a positive and significant effect on REER volatility at a 1% significance level. Moreover, the Granger test suggests that the independent variables cause REER volatility at a 1% significance level. Finally, the study concludes that the Russian-Ukrainian war significantly intensifies REER volatility more than the COVID-19 pandemic.