Understanding Exchange Rate Volatility Without the Contrivance of Macroeconomics
AbstractExchange rate regimes differ primarily by the activity of the exchange rate, not observable macroeconomic ‘fundamentals’. Fixed exchange rates are typically stable and floating exchange rates are volatile, but macro phenomena are regime-independent. Fundamentals only seem to be relevant for exchange rates at low frequencies or when inflation is high. A basic task of international finance is explaining these cross-regime differences in exchange rate volatility. The evidence suggests that a switch in exchange rate policy is accompanied by a change in market structure; macroeconomic considerations are superfluous. We formalize this observation in a non-linear model with multiple equilibria.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1944.
Date of creation: Aug 1998
Date of revision:
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Other versions of this item:
- Flood, Robert P & Rose, Andrew K, 1999. "Understanding Exchange Rate Volatility without the Contrivance of Macroeconomics," Economic Journal, Royal Economic Society, vol. 109(459), pages F660-72, November.
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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