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This study examines the interdependence and asymmetries in the relationships between the economic policy uncertainty and the selected financial stability variables in Europe. Specifically, the impact of uncertainty on inflation, equity returns, the euro in US dollar exchange rate and interest rates is analyzed. The results show a significant negative impact of shocks in economic policy uncertainty on equity returns in Europe during the examined January 1987 – January 2023 period. Uncertainty shocks affect inflation asymmetrically at different time intervals. Asymmetric responses of interest rates and the exchange rate to uncertainty shocks are also found. The results suggest that economic policies in Europe should encompass efforts to mitigate economic uncertainty. [ABSTRACT FROM AUTHOR]

The focus of this research is the identification of the fear of floating (FOF) problem as a vulnerable ground for employing the exchange rate (ER) as a shock absorber with consequent limitations for expenditure-switching external adjustment mechanism. This research aims to fill the literature gap stressing the connection between FOF and the functioning of expenditure-switching external adjustment mechanism, highlighting the nexus from the viewpoint of emerging European vs. Latin American floaters, as well as from individual emerging European floaters (the Czech Republic, Hungary, Poland, Romania) in the period 2000Q1-2017Q2 with standard and panel VAR analysis. FOF is identified as a stronger reaction of foreign exchange reserves and interest rate to nominal ER shocks, as well as higher variations of real ER explained with price shocks compared to nominal ER shocks. As a confirmation, in countries with expressed FOF current account shock is more transmitted to economic activities (expenditure-reducing external adjustment) rather than nominal ER changes (expenditure-switching mechanism). The results confirm the vulnerable position of European emerging floaters compared to Latin American floaters, bearing in mind the stronger FOF coinciding with the higher currency mismatch. Within the sample of European emerging floaters the most vulnerable position concerning the nexus was detected for Romania, while the most favorable position was found in the case of Poland. [ABSTRACT FROM AUTHOR]

Through multifractal detrended moving-average cross-correlation analysis (MF-X-DMA) and partial moving-average cross-correlation coefficient analysis (PDMCA), this paper studies power-law cross-correlations between renminbi (RMB) onshore and offshore markets (2013–2018). The interaction between CNY and CNH market pairs was examined with attention to how the floating exchange rate regime reform of August 11, 2015 affects their interactions. The obtained results suggest that net power-law cross-correlations exist between the CNY and CNH exchange markets (with influences of autocorrelation, interest rate difference, US Dollar, and Oil signals removed) and that the August 11, 2015 (referred to as "811") exchange reform significantly affects the trend of multiscale cross-correlation coefficient curves. This study also verifies that the risk of offshore RMB markets in Europe and the UK is larger than in Hong Kong and the US when facing a large shock. The nonlinear causal effect analysis reveals that asymmetric bidirectional nonlinear causality exists between any market pair, and the degree of asymmetry appears to have declined after the 811 exchange rate regime reform. For the offshore RMB markets in the US, Europe, and UK, there is evidence of stronger causality running from the CNH to CNY than vice versa, which implies that the foreign impulses have had an influence on the domestic market, and the floating exchange rate reform effectively improves the RMB exchange rate formation mechanism. • We examine the net power-law cross-correlations between onshore and offshore renminbi exchange markets. • Asymmetric bidirectional causality between the onshore and offshore exchange rates is found. • The floating exchange rate reform effectively improves the RMB exchange rate formation mechanism. [ABSTRACT FROM AUTHOR]