COVID-19 and currency market: a comparative analysis of exchange rate movement in China and USA during pandemic

Abstract

By aiming to understand the importance of the ongoing effects of COVID-19 on several economies, this study attempts to highlight the impact of COVID-19 confirmed cases and deaths occurring in the most affected countries of the world such as China and the USA, especially in the context of their respective currencies. For this purpose, the daily data from January 22, 2020, till May 7, 2021, has been taken into account, and then has been analyzed to examine the linear relationship between the currency and proxies of the COVID-19 pandemic. Moreover, the (autoregressive distributed lag) ARDL model has been employed in order to fulfil the research objective with numerous statistical diagnostic measures, so as to validate the model. The results indicate that the exchange rate is affected negatively due to the effect of COVID-19 cases and deaths in particular countries. Moreover, the effect of the pandemic is not limited to the short run only, but also in the long run, as it is hurting the financial backbone of China and the USA.