Exchange rate volatility: Does politics matter?

We examine the weekly volatility of the Japanese Yen, British Pound, German Mark and Canadian Dollar relative to the U.S. Dollar through five recent U.S. presidential terms. Our EGARCH-M model adds several new findings to the literature, Our results suggest that: 1) the volatility of all four exchange rates is impacted by either the year in the electoral cycle and/or the political party in office; 2) past innovations exert an asymmetric impact on the conditional volatility of exchange rates, and 3) close to a U.S. election, an unexpected dollar depreciation impacts the volatility of the Yen and Mark significantly more than does an unexpected dollar appreciation.