The effect of exchange-rate uncertainty on unemployment in three developing Asian countries: evidence from bivariate GARCH approach

Abstract

This article proposes a nonlinear model of bivariate Generalized AutoRegressive Conditional Heteroscedasticity with mean (GARCH-in-Mean) to construct time-varying exchange-rate uncertainty and estimate the effects of exchange-rate uncertainty on unemployment in three developing Asian countries. The effect that increasing exchange-rate uncertainty has a positive but unobvious impact on unemployment is verified for Taiwan and Singapore. The shock of exchange-rate uncertainty provides a large positive stimulus to unemployment initially, but the stimulus gradually falls in Singapore. In Taiwan, this shock on unemployment is relatively small than that in Singapore and will die out eventually.