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Exchange rate uncertainty and economic fluctuations in typical emerging economies

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  • Nguyen Ba Trung

    (International University, Ho Chi Minh City Vietnam National University, Ho Chi Minh City, Vietnam)

Abstract

This paper examines the role of Exchange Rate Uncertainty (ERU) in driving economic fluctuations in emerging economies using a VAR with stochastic volatility in the mean. We use the quarterly data of three typical emerging economies from 1972Q3 to 2009Q4 within a VAR model. We show that ERU plays a vital role in driving the business cycles of emerging economies. First, an ERU can provoke risks in the financial market and the real economy. Second, ERU hurts equity prices and the output growth of emerging economies. Further investigation shows that the adverse effects of ERU on output are more severe under the fixed exchange rate regime than under the flexible exchange rate regime. This finding implies that adopting the flexible exchange rate regime can help emerging economies mitigate the adverse effects of uncertainty shocks.

Suggested Citation

  • Nguyen Ba Trung, 2024. "Exchange rate uncertainty and economic fluctuations in typical emerging economies," HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE - ECONOMICS AND BUSINESS ADMINISTRATION, HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE, HO CHI MINH CITY OPEN UNIVERSITY, vol. 14(1), pages 88-103.
    • Handle: RePEc:bjw:econen:v:14:y:2024:i:1:p:88-103
    DOI: 10.46223/HCMCOUJS.econ.en.14.1.2729.2024
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    More about this item

    Keywords

    Bayesian VAR model; exchange rate uncertainty; emerging economies; stochastic volatility; uncertainty;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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