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Real Exchange Rate Volatility and Economic Growth

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  • Hakan Yilmazkuday

Abstract

This paper investigates the effects of real exchange rate volatilities on economic growth for a balanced annual panel of 61 countries using the local projections method. The empirical results suggest that a unit shock to the real exchange rate volatility reduces economic growth by up to 0.35% after two years. When different economic conditions are considered, shocks to real exchange rate volatility reduce economic growth only during periods of negative economic growth rates and high real exchange rate volatilities. Additional estimations distinguishing between different country groups further show that these empirical results are mostly driven by emerging markets and developing countries, whereas the effects for advanced countries are statistically insignificant. Important policy suggestions follow.

Suggested Citation

  • Hakan Yilmazkuday, 2025. "Real Exchange Rate Volatility and Economic Growth," International Economic Journal, Taylor & Francis Journals, vol. 39(4), pages 591-608, October.
    • Handle: RePEc:taf:intecj:v:39:y:2025:i:4:p:591-608
    DOI: 10.1080/10168737.2025.2532597
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