IMPACT OF UNCERTAINTY ON HUNGARIAN, CZECH, AND POLISH CURRENCIES

Abstract

The present study examined the impact of uncertainty on the exchange rates of currency pairs traded at the Visegrad Group, except the currency of Slovakia. The USD/EUR exchange rate is considered the main influential factor affecting the exchange rates of the currency pairs of Hungary, Czech Republic, and Poland. The study analysed the exchange rates return of these three countries from 1 January 2010 to 31 December 2020. This period covers the announcement and implementation of Brexit; therefore, USD/GBP is considered the second influential factor affecting the exchange rates of the stated currencies. Moreover, the VIX, EMV, and EPU indices are selected as additional uncertainty indicators. The proposed regression model measures the impact of uncertainty on the exchange rates of the selected currencies. It has been discovered that the USD/EUR exchange rate returns significantly influenced the exchange rate returns of the stated currencies during the period under study. In addition, USD/GBP exchange rate returns also had a statistically significant impact on all the currency pairs at the beginning of the analysed period. However, its influence keeps fluctuating throughout the analysed period. The impact of VIX was weak throughout but statistically significant for USD/HUF and USD/PLN exchange rates. On the other hand, the study finds that EMV and EPU indices do not have a pronounced impact on the analysed exchange rate returns. As demonstrated, the uncertainty indices had a relatively higher impact on the development of the observed exchange rate returns. However, the study finds that their impact was often not statistically significant; moreover, the index impacts themselves were quite low.