Correlation between geo political risk, economic policy uncertainty and exchange rates using partial and multiple wavelet coherence in P5 nations

Evaluating and quantifying risk spill overs from geopolitical genres to translating into investment risk has been attempted by many. We attempt to evaluate the association the risk premia associated with the GPR of a country with economic policy uncertainty and exchange rates. Similarly, we have attempted to evaluate the degree of coherence between all variables under study for P5+1 Nations. We find that: 1) there is evidence of cyclicality between GPR and EPU, implying that geopolitical risk and economic political uncertainty go parallelly; 2) strong coherence at lower frequencies shows that GPR has a significant impact on the exchange rate returns and EPU of the most countries under study; 3) after controlling for the effect of GPR, the co-movements between the confirmed EPU and Exchange rate returns becomes stronger; 4) after controlling for the effect of exchange rate returns, the co-movements between the GPR and EPU becomes stronger.