Are Exchange Rates Excessively Volatile? And What Does "Excessively Volatile" Mean, Anyway?
AbstractWe apply recent asset price volatility tests to re-examine whether exchange rates have been "excessively" volatile over the post-Bretton Woods period relative to the predictions of the monetary model of the exchange rate and of standard extensions with sticky prices, sluggish money adjustment, and risk premiums. Our tests reject most of the models that we examine. In general, however, we find that exchange rates have not been excessively volatile, relative to the predictions of even the most restrictive versions of the model. Alternative measures of volatility, however, may disguise the cause of rejection as excessive exchange rate volatility.
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.
Volume (Year): 43 (1996)
Issue (Month): 1 (March)
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Other versions of this item:
- Leonardo Bartolini & Gordon M. Bodnar, 1996. "Are exchange rates excessively volatile? And what does "excessively volatile" mean, anyway?," Research Paper 9601, Federal Reserve Bank of New York.
- Gordon M. Bodnar & Leonardo Bartolini, 1995. "Are Exchange Rates Excessively Volatile? And What Does "Excessively Volatile" Mean, Anyway?," IMF Working Papers 95/85, International Monetary Fund.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
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