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Modeling Exchange Rate Volatility

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  • Basher A. Balg
  • Hugh Metcalf

Abstract

This paper investigates the impact of the volatility of the underlying macroeconomic fundamentals on exchange rate volatility utilizing the bounds testing approach to cointegration. The results show that, in the long run the volatility of the money supply is the sole determinant, whereas in the short run overshooting is found.

Suggested Citation

  • Basher A. Balg & Hugh Metcalf, 2010. "Modeling Exchange Rate Volatility," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 109-120, February.
  • Handle: RePEc:bla:reviec:v:18:y:2010:i:1:p:109-120
    DOI: 10.1111/j.1467-9396.2009.00872.x
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    References listed on IDEAS

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    2. Wang, Xinyu & Qi, Zikang & Huang, Jianglu, 2023. "How do monetary shock, financial crisis, and quotation reform affect the long memory of exchange rate volatility? Evidence from major currencies," Economic Modelling, Elsevier, vol. 120(C).
    3. Marilyne Huchet & J. Korinek, 2011. "To what extent do exchange rates and their volatility affect trade ?," Post-Print hal-00729403, HAL.
    4. Dengjun Zhang, 2015. "The trade effect of price risk: a system-wide approach," Empirical Economics, Springer, vol. 48(3), pages 1149-1167, May.
    5. You, Yu & Liu, Xiaochun, 2020. "Forecasting short-run exchange rate volatility with monetary fundamentals: A GARCH-MIDAS approach," Journal of Banking & Finance, Elsevier, vol. 116(C).

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