scholarly journals Can Information Heterogeneity Explain the Exchange Rate Determination Puzzle?

2006 ◽  
Vol 96 (3) ◽  
pp. 552-576 ◽  
Author(s):  
Philippe Bacchetta ◽  
Eric van Wincoop
Keyword(s):  
Exchange Rate ◽  
Empirical Evidence ◽  
Rational Expectations ◽  
Exchange Rate Volatility ◽  
Order Flow ◽  
Macroeconomic Variables ◽  
Symmetric Information ◽  
Macroeconomic Fundamentals ◽  
The Exchange Rate ◽  
Exchange Rate Changes

Empirical evidence shows that most exchange rate volatility at short to medium horizons is related to order flow and not to macroeconomic variables. We introduce symmetric information dispersion about future macroeconomic fundamentals in a dynamic rational expectations model in order to explain these stylized facts. Consistent with the evidence, the model implies that (a) observed fundamentals account for little of exchange rate volatility in the short to medium run, (b) over long horizons, the exchange rate is closely related to observed fundamentals, (c) exchange rate changes are a weak predictor of future fundamentals, and (d) the exchange rate is closely related to order flow.

scholarly journals Exchange Rate Volatility and Its Implications on Macroeconomic Variables in East African Countries

2020 ◽  
Vol 7 (3) ◽  
pp. 145
Author(s):  
Nicas Yabu ◽  
Deogratius Kimolo
Keyword(s):  
Exchange Rate ◽  
Positive Impact ◽  
Export Performance ◽  
Exchange Rate Volatility ◽  
Mitigation Measures ◽  
Macroeconomic Variables ◽  
Long Run ◽  
Short Run ◽  
Lending Rates ◽  
The Exchange Rate

The study examines the extent of exchange rate volatility and its impact on key macroeconomic variables such as exports, FDI inflows, interest rate and inflation in Tanzania, Kenya and Uganda. The GARCH model is used to compute the extent of exchange rate volatility while the Panel Autoregressive Distributed Lag (ARDL) technique or pooled mean group (PMG) estimator was used to estimate the effects of exchange rate volatility on selected macroeconomic variables. The results indicate that volatility in the exchange rate is a real issue in all the sampled countries and is fundamentally driven by exports and FDI dynamics for the period under consideration. The results indicate a positive impact of the exchange rate volatility to export performance and lending rates in the long run. Exchange rate volatility appears to be detrimental to both export performance and leads to a reduction in lending rates in the short run. Also, the response of FDI to exchange rate volatility seems to be negative in the long run while in the short run the response from the volatility of real exchange rate seems is insignificant. Though not significant, the volatility of the exchange rate appears to have a positive impact on inflation. The study recommends that policymakers need institute mitigation measures which could smooth out excessive exchange rate volatility to minimize its likely impact on the economy. The study also indicated a need for the EAC countries to consider adopting inflation targeting monetary policy framework in order to contain inflation at the appropriate level.

A New Approach to Identifying Exchange Rate Regimes

2018 ◽  
Vol 64 (2) ◽  
pp. 137-157
Author(s):  
Gerald Fugger
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Regimes ◽  
Three Dimensional ◽  
Exchange Rate Volatility ◽  
New Approach ◽  
Clustering Techniques ◽  
Effective Exchange ◽  
Clustering Approach ◽  
The Exchange Rate ◽  
Exchange Rate Changes

Abstract This publication identifies de facto exchange rate regimes. The study takes into account multiple specifications for the exchange rate regimes, both effective and non-effective. The regimes are classified by means of a three-dimensional clustering approach, that takes the exchange rate volatility, the volatility of exchange rate changes and the volatility of reserves into account. The regimes are classified as floating, dirty floating, crawling peg or fixed. The analysis comprises 90 countries and a span of 35 years. JEL classifications: E42 Keywords: de facto exchange rate regimes, clustering techniques, effective exchange rates

scholarly journals Macroeconomic Fundamentals and the Exchange Rate Volatility: Empirical Evidence From Somalia

SAGE Open ◽  
2020 ◽  
Vol 10 (1) ◽  
pp. 215824401989884
Author(s):  
Mohamed Ibrahim Nor ◽  
Tajul Ariffin Masron ◽  
Tariq Tawfeeq Yousif Alabdullah
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Regulatory Authority ◽  
Exchange Rate Volatility ◽  
Rate System ◽  
Macroeconomic Factors ◽  
Post Conflict ◽  
Macroeconomic Fundamentals ◽  
Exchange Rate System ◽  
The Exchange Rate

The purpose of this research is to investigate the effect of macroeconomic factors on the volatility of Somalia’s unregulated exchange rates. While utilizing the EGARCH (exponential generalized autoregressive conditional heteroskedastic) model, this study found that the unregulated exchange rate volatility of Somalia is influenced by its own shocks and the macroeconomic factors. This study implies that although Somali shilling circulated without regulatory authority for the period of the statelessness, this circulation has been accompanied by volatile exchange rates. This phenomenon makes this study an appealing work that should be pursued further. Hence, this study contributes notably to the process of reforming the exchange rate system and the monetary policy of the post-conflict economy of Somalia. In addition, the results of this study imply that even in times of war and lawlessness the laws of economics do not change completely.

scholarly journals Exchange Rate Volatility: Does Microeconomic Policy Uncertainty Impact Exchange Rate Volatility?

2021 ◽  
Vol 9 (11) ◽  
pp. 843-849
Author(s):  
Kelly Oniha
Keyword(s):  
United States ◽  
Monetary Policy ◽  
Exchange Rate ◽  
Exchange Rate Volatility ◽  
Macroeconomic Policy ◽  
Policy Uncertainty ◽  
Macroeconomic Variables ◽  
The Exchange Rate ◽  
The Impact

Abstract: This paper analyzes the impact of macroeconomic policy uncertainty on the exchange rate volatility in United States. Using newly developed measure of monetary policy uncertainty, and macroeconomic variables, I find that higher monetary policy uncertainty increases the exchange rate volatility.

scholarly journals A Cointegration of the Exchange Rate and Macroeconomic Fundamentals: The Case of the Indonesian Rupiah vis-á-vis Currencies of Primary Trade Partners

2019 ◽  
Vol 12 (2) ◽  
pp. 87 ◽  
Author(s):  
Agus Salim ◽  
Kai Shi
Keyword(s):  
Exchange Rate ◽  
Emerging Market ◽  
Exchange Rate Volatility ◽  
Trade Surplus ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag ◽  
Long Run ◽  
Macroeconomic Fundamentals ◽  
The Exchange Rate ◽  
Trade Partners

Since the appearance of persistent research finding a disconnection between the exchange rate and its macroeconomic fundamentals, the empirical debate has not stopped. Studies employ various methods to explain the presence of the exchange rate disconnect puzzle, including applying models to the case of emerging market economies. However, the exchange rate has different determinants in some countries. To revisit this puzzle in an emerging market currency, we analyzed the cointegration of the exchange rate of the Indonesian Rupiah vis-á-vis currencies of primary trade partners and its macroeconomic fundamentals. The empirical results based on Autoregressive Distributed Lag (ARDL) and Nonlinear Autoregressive Distributed Lag (NARDL) models show that the fundamental variables consistently drive the exchange rate. The trade surplus as an extended nonlinear variable revealed high feedback to the exchange rate volatility in the long-run.

Exchange Rate Volatility in Emerging Markets:The Chilean Case

2007 ◽  
pp. 87-100
Author(s):  
Juan R. Castro
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Regime ◽  
External Debt ◽  
Exchange Rate Volatility ◽  
Arch Model ◽  
Macroeconomic Shocks ◽  
Domestic Debt ◽  
Domestic Credit ◽  
The Face ◽  
The Exchange Rate

The document conducts an empirical investigation on the volatility of the Chilean exchange rate regime, using a model of Objective Zones. Through the use of the ARCH model, the document tests the volatility of the exchange rate in the presence of different levels of international reserves and other macroeconomic shocks. The results show that domestic credit, domestic debt and external debt have the greatest impact on the volatility of the variables studied, especially when compared with other fundamental variables. The variance of the exchange rate is heterosedastic but it is not persistent, which implies that the exchange rate is stable, probably when it oscillates between two bands. The volatility of the exchange rate fluctuates to a greater extent in the face of changes in internal and external debt, than with the other variables used.

scholarly journals What is the exchange rate volatility response to COVID-19 and government interventions?

2021 ◽  
Vol 69 ◽  
pp. 705-719
Author(s):  
Gen-Fu Feng ◽  
Hao-Chang Yang ◽  
Qiang Gong ◽  
Chun-Ping Chang
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Volatility ◽  
Government Interventions ◽  
The Exchange Rate

scholarly journals Exchange Rate Volatility and Domestic Consumption: A Comparative Study of Developed, Developing and Emerging Economies

2019 ◽  
Vol 9 (3) ◽  
pp. 164
Author(s):  
Muhammad Zubair Chishti ◽  
Hafiz Syed Muhammad Azeem ◽  
Farrukh Mahmood ◽  
Adeel Ahmed Sheikh
Keyword(s):  
Exchange Rate ◽  
Panel Data ◽  
Developing Economies ◽  
Exchange Rate Volatility ◽  
Domestic Consumption ◽  
Aggregate Consumption ◽  
Developed Economies ◽  
Panel Data Estimation ◽  
The Exchange Rate ◽  
Data Estimation

The current study endeavors to explore the effects of oscillations in the exchange rate on the household aggregate consumption of developed, emerging, and developing economies, employing the panel data from 1995 to 2017. To select an appropriate panel data estimation technique, we apply Brush-Pagan & Hausman Tests for each set of chosen economies. Further, our study deduces that, in the case of developed economies, the oscillations in the exchange rate, significantly, affect the domestic consumption, supporting Alexander’s (1952) conjecture. However, in the case of emerging and developing economies, aggregate consumption does not respond to the exchange rate volatility.

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