Has COVID-19 Changed Exchange Rate Resistance to Shocks?

Abstract

In this note, we propose the hypothesis that COVID-19 has influenced the Yen-US dollar exchange rate’s resistance to shocks. We propose a time varying unit root model and unravel that prior to the pandemic, the Yen was non-stationary while during the pandemic it became mostly stationary, suggesting that shocks to the Yen are having a transitory effect. We, as a result, conclude that COVID-19 has changed the resistance of the Yen to shocks.