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Are there Swift Transitions in the Smooth Transition Regressions of the Exchange Rate Volatility of Dollarized Versus Non-Dollarized Economies?

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  • Lula G Mengesha

    (University of Waikato, Private Bag 3015, Hamilton 3240, New Zealand.)

Abstract

The aim of this paper is to examine the nature of the transitions in the exchange rate volatility of dollarized and non-dollarized economies as a result of global financial stress. Smooth transition regression is applied to the daily data of 16 countries. In the non-linear regime, exchange rate volatility of most non-dollarized economies increases with the increase in global financial stress volatility. On average, there are abrupt transitions in the exchange rate volatility of dollarized economies. Some of the results imply that anchoring a currency to the US dollars requires fast policy reactions, particularly at times of US financial crisis.

Suggested Citation

  • Lula G Mengesha, 2016. "Are there Swift Transitions in the Smooth Transition Regressions of the Exchange Rate Volatility of Dollarized Versus Non-Dollarized Economies?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 58(1), pages 43-59, March.
    • Handle: RePEc:pal:compes:v:58:y:2016:i:1:p:43-59
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