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Exchange Rate Volatility and Output Volatility: A Theoretical Approach

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Author Info
Maria Grydaki
Stilianos Fountas

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Abstract

This paper makes an attempt to determine the factors influencing exchange rate and exchange rate uncertainty, as well as output and output variability. In the context of a small open economy under flexible exchange rates regime it is found that the level both of exchange rate and output is affected by monetary and inflationary shocks, as well as shocks in government spending, output, and trade balance. Further, the uncertainty of exchange rate and output is associated positively with the uncertainty of all shocks while the contemporaneous occurrence of selected shocks imposes either a positive or negative impact on exchange rate and output volatility. Finally, it is shown that the effect of the determinants either of exchange rate volatility or output volatility is very sensitive to the parameter values. Copyright © 2009 The Authors. Journal compilation © 2009 Blackwell Publishing Ltd.

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File URL: http://www.blackwell-synergy.com/links/doi/10.1111/j.1467-9396.2009.00833.x
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Publisher Info
Article provided by Blackwell Publishing in its journal Review of International Economics.

Volume (Year): 17 (2009)
Issue (Month): 3 (08)
Pages: 552-569
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Handle: RePEc:bla:reviec:v:17:y:2009:i:3:p:552-569

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  5. Stilianos Fountas & Menelaos Karanasos & Alfonso Mendoza, 2004. "Output Variability and Economic Growth: the Japanese Case," Bulletin of Economic Research, Blackwell Publishing, vol. 56(4), pages 353-363, October. [Downloadable!] (restricted)
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  7. Manuelli, Rodolfo E & Peck, James, 1990. "Exchange Rate Volatility in an Equilibrium Asset Pricing Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 559-74, August. [Downloadable!] (restricted)
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