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Are exchange rates macroeconomic phenomena?

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  • Andrew K. Rose

Abstract

This paper argues that macroeconomic variables are relatively unimportant determinants of exchange rates. The argument hinges on the fact that bilateral exchange rate volatility differs widely across pairs of countries, but macroeconomic volatility is much more similar across countries, at least at short- and medium-term frequencies. For instance, the French Franc/German Deutschemark exchange rate has dramatically lower volatility than the Canadian dollar/German Deutschemark rate, although France and Canada have approximately equal macroeconomic volatility vis-a-vis Germany.

Suggested Citation

  • Andrew K. Rose, 1994. "Are exchange rates macroeconomic phenomena?," Economic Review, Federal Reserve Bank of San Francisco, pages 19-30.
    • Handle: RePEc:fip:fedfer:y:1994:p:19-30:n:1
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    File URL: http://www.frbsf.org/publications/economics/review/1994/94-1_19-30.pdf
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    Cited by:

    1. Hadj Fraj, Salma & Hamdaoui, Mekki & Maktouf, Samir, 2018. "Governance and economic growth: The role of the exchange rate regime," International Economics, Elsevier, vol. 156(C), pages 326-364.
    2. Rose, Andrew K, 1996. "After the Deluge: Do Fixed Exchange Rates Allow Inter-temporal Volatility Tradeoffs?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(1), pages 47-54, January.
    3. Rotheli, Tobias F., 2002. "Bandwagon effects and run patterns in exchange rates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 12(2), pages 157-166, April.
    4. Olivier Jeanne & Andrew K. Rose, 2002. "Noise Trading and Exchange Rate Regimes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 537-569.
    5. Gregory P. Hopper, 1997. "What determines the exchange rate: economic factors or market sentiment?," Business Review, Federal Reserve Bank of Philadelphia, issue Sep, pages 17-29.
    6. John Sarich, 2006. "What do we know about the real exchange rate? A classical cost of production story," Review of Political Economy, Taylor & Francis Journals, vol. 18(4), pages 469-496.
    7. Saadet Kasman & Duygu Ayhan, 2006. "Macroeconomic Volatility under Alternative Exchange Rate Regimes in Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 6(2), pages 37-58.
    8. Beng, Gan Wee, 2000. "Exchange-rate policy in East Asia after the fall: how much have things changed?," Journal of Asian Economics, Elsevier, vol. 11(4), pages 403-430.
    9. Mr. M. Nowak & Mr. Ketil Hviding & Mr. Luca A Ricci, 2004. "Can Higher Reserves Help Reduce Exchange Rate Volatility?," IMF Working Papers 2004/189, International Monetary Fund.
    10. Lafrance, Robert & St-Amant, Pierre, 2000. "Les zones monétaires optimales," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(4), pages 577-612, décembre.

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    Keywords

    Foreign exchange rates;

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