Abstract
Given the significance of fostering sustainable climate conditions for long-term economic stability and financial resilience, this study probes the connection between climate-related policy ambiguity and its implications for currency valuation. In doing so, the current study investigates the interconnected effects of climate policy on economic policy uncertainty and geopolitical risk with the currency valuation in ASEAN countries. Employing wavelet coherence analysis and partial wavelet coherence analysis, the paper highlights the complex relationships among these factors and their implications for exchange rate fluctuations. Using data from 2000 to 2022, the findings reveal that climate policy uncertainty is an important driver of exchange rate movements, amplifying the impact of economic policy uncertainty and geopolitical risk. Furthermore, the study identifies a vicious cycle between climate policy uncertainty and exchange rates, potentially impacting the region’s macroeconomic stability and long-term economic growth. The study presents several policy recommendations to address economic and climate policy uncertainties comprehensively based on the findings. These recommendations include establishing national frameworks for climate risk management, enhancing policy credibility and macroeconomic stability, and promoting regional integration to mitigate the influence of geopolitical risk on exchange rates.
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Abbreviations
- IER:
-
Indonesian rupiah (IDR) per USD exchange rate
- MER:
-
Malaysian ringgit (MYR) per USD exchange rate
- BER:
-
Bruneian dollar (BND) per USD exchange rate
- SER:
-
Singapore dollar (SGD) per USD exchange rate
- TER:
-
Thai baht (THB) per USD exchange rate
- PER:
-
Philippine peso (PHP) per USD exchange rate
- CPR:
-
Global climate policy uncertainty
- GPR:
-
Geopolitical risk
- EPR:
-
Global economic policy uncertainty
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Funding
This paper was supported by the Fundamental Research Grant Scheme (FRGS) Project: FRGS/1/2020/SS01/SYUC/02/2, provided by the Ministry of Higher Education, Malaysia.
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SA: conceptualization; write-up—introduction, data analysis, review, and editing.
UR: write-up—literature, methodology, and result interpretation.
KYL: review and editing (whole draft).
BL: review and editing (whole draft).
CWHC: write-up—conclusion and policy implication.
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Highlights
• This study examines currency movements in ASEAN region.
• Climate policy is found as a significant driver of exchange rate movements.
• Uncertainty in climate policy escalated the influence of EPR and GPR on exchange rates.
• Polices are suggested to overcome the adverse effects of EPR, GPR, and CPR on the exchange rate.
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Afshan, S., Razi, U., Leong, K.Y. et al. Navigating the interconnected risks in currency valuation: unveiling the role of climate policy uncertainty. Environ Sci Pollut Res 30, 122580–122600 (2023). https://doi.org/10.1007/s11356-023-30687-2
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DOI: https://doi.org/10.1007/s11356-023-30687-2