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The impacts of economic sanctions on exchange rate volatility

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  • Wang, Yiwei
  • Wang, Ke
  • Chang, Chun-Ping

Abstract

This research empirically analyzes the impact of various instruments of economic sanctions on official exchange rate volatility by employing data from a panel of 23 target countries covering the period 1996–2015 and using the Least Squares Dummy Variable Corrected (LSDVC) model. Our findings suggest that economic sanctions do significantly influence the target countries’ exchange rate volatility. Specifically, we are able to see different sanction present its different effects on exchange rate volatility. Furthermore, the robustness evidence of the eliminating country as Iran, eliminating variable of political ideology, intercepting time period, cross-sectional regression analysis, using real exchange rate volatility as proxy variable and a new sanctions database, are basically consistent with the previous finding. Overall, our empirical findings offer implications for those sanctioned countries about how to stabilize their exchange rate when facing sanctions.

Suggested Citation

  • Wang, Yiwei & Wang, Ke & Chang, Chun-Ping, 2019. "The impacts of economic sanctions on exchange rate volatility," Economic Modelling, Elsevier, vol. 82(C), pages 58-65.
    • Handle: RePEc:eee:ecmode:v:82:y:2019:i:c:p:58-65
    DOI: 10.1016/j.econmod.2019.07.004
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    JEL classification:

    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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