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Exchange Rate Volatility in High Inflation Economies: An Econometric Study of Poland and Brazil

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  • Flores, Renato G, Jr
  • Monteiro, Marcos de B
  • Szafarz, Ariane

Abstract

This paper analyses exchange rate series for Poland and Brazil. The Polish series, related to the period soon after the first liberalizing measures, presents a high volatility which is not accounted for by some selected 'fundamentals.' The Brazilian series, though also keeping evidence of excessive volatility, is cointegrated with fundamentals similar to those of the Polish case. This raises the issue of a learning process taking place during persistent inflations. Unsuccessful one-shot stabilization plans can reinforce this process, leaving a lasting imprint in the excessive volatility pattern. The message seems clear, though maybe not easy to implement: agents take some time to learn to live in non-stable environments; to avoid this by one-shot measures--if unsuccessful--can have a very high cost and preempt future corrections. Copyright 1994 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Economics of Planning.

Volume (Year): 27 (1994)
Issue (Month): 3 ()
Pages: 277-92

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Handle: RePEc:kap:ecopln:v:27:y:1994:i:3:p:277-92

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Web page: http://www.springerlink.com/link.asp?id=113294

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Cited by:
  1. Charemza, Wojciech W., 1996. "Detecting stochastic bubbles on an East European foreign exchange market: An estimation/simulation approach," Structural Change and Economic Dynamics, Elsevier, vol. 7(1), pages 35-53, March.
  2. Renato Flôres & Ariane Szafarz, 1997. "Testing the Information Structure of Eastern European Markets: The Warsaw Stock Exchange," ULB Institutional Repository 2013/707, ULB -- Universite Libre de Bruxelles.

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