Unraveling the Causal Relationship Between Economic Policy Uncertainty and Exchange Market Pressure in BRIC Countries: Evidence From Bootstrap Panel Granger Causality

Abstract

This study examines the causal relationships between exchange market pressure and both global and domestic economic policy uncertainty among the Brazil, Russia, India, and China economies. We employed the bootstrap panel Granger causality approach, having found cross-sectional dependency among the countries as an indicator of their mutual developmental characteristics. The individual country analysis shows that, between exchange market pressure and global economic policy uncertainty, only China has bidirectional causality, while no causality was found for Russia. Between exchange market pressure and domestic economic policy uncertainty, India and Russia have bidirectional causality. Domestic economic policy uncertainty does not matter for China's exchange market pressure; therefore, China has one-way causality from exchange market pressure to domestic economic policy uncertainty. Overall, in these countries, exchange market pressure is influenced by global economic policy uncertainty while both exchange market pressure and domestic economic policy uncertainty mutually interact to influence each other.