Chinese Belt and Road Initiative and Exchange Rate Volatility Spillovers in Emerging Asia

Abstract

In this study, we tried to examine the exchange rate volatility spillovers dynamics among Asian emerging economies by comparing the pre and post BRI samples. Using the Generalized Forecast Error Variance Decomposition based Diebold and Yilmaz (2012) Spillover Index method; results revealed that volatility spillovers remained high indicating persistent cross market risk transmission. Volatility spillover were marginally higher during the pre BRI period, however, a slight decline is noticed in the post BRI period suggesting gradual market segmentation as a result of improved exchange rate and macroeconomic policies. Turkish Lira appeared as major transmitter in the pre BRI period, while Thai baht in the post BRI period. The findings are equally important for investors and policymakers in order to make portfolio management strategies and financial stability during economic uncertainties.