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A Panel‐Regressions Investigation Of Exchange Rate Volatility

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  • Axel Grossmann
  • Alexei G. Orlov

Abstract

ABSTRACT This paper offers an empirical explanation behind the dynamics of the overall volatility of exchange rates and its high‐frequency, most economically destabilizing components. Spectral methodology is employed to isolate the portion of volatility attributable to high‐frequency components, and panel regressions are used to relate the volatility measures to various macroeconomic and policy variables. Given the estimated panel regressions, the paper suggests policies that may help reduce exchange rate volatility in general and along high‐frequency components in particular, thereby contributing to financial stability. The paper shows that while the macroeconomic and policy variables affecting the high‐frequency components of volatility and overall volatility are generally similar, there are some important differences. The paper also highlights the divergent impacts of policy variables in developed vis‐à‐vis developing economies. The results are robust with respect to using alternative cut‐off frequencies and estimation methods. The presented analysis may help to gain an understanding of the determinants of the most destabilizing components of exchange rate volatility and provide guidance into managing currency crises. Copyright © 2014 John Wiley & Sons, Ltd.

Suggested Citation

  • Axel Grossmann & Alexei G. Orlov, 2014. "A Panel‐Regressions Investigation Of Exchange Rate Volatility," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 19(4), pages 303-326, October.
    • Handle: RePEc:wly:ijfiec:v:19:y:2014:i:4:p:303-326
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    Cited by:

    1. Asta Ndongo & Ibrahima Thione Diop, 2021. "Economic and Monetary Integration in ECOWAS Countries: A Panel VAR Approach to Identify Macroeconomic Shocks," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 7(2), pages 61-87, December.
    2. Chow, Yee Peng & Muhammad, Junaina & Bany-Ariffin, A.N. & Cheng, Fan Fah, 2019. "Macroeconomic Uncertainty and Corporate Capital Structure: Evidence from the Asia Pacific Region," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(2), pages 99-122.
    3. Kizito Uyi Ehigiamusoe & Mohamad Shaharudin Samsurijan, 2021. "What matters for finance‐growth nexus? A critical survey of macroeconomic stability, institutions, financial and economic development," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5302-5320, October.
    4. Bush, Georgia & López Noria, Gabriela, 2021. "Uncertainty and exchange rate volatility: Evidence from Mexico," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 704-722.
    5. Okot, Anjelo & Kaltenbrunner, Annina & Perez Ruiz, Daniel, 2022. "Determinants of the exchange rate, its volatility and currency crash risk in Africa's low and lower middle-income countries," EIB Working Papers 2022/12, European Investment Bank (EIB).
    6. Audi, Marc, 2024. "The Impact of Exchange Rate Volatility on Long-term Economic Growth: Insights from Lebanon," MPRA Paper 121634, University Library of Munich, Germany.
    7. Abir Abid & Christophe Rault, 2020. "On the Exchange Rate and Economic Policy Uncertainty Nexus: A Panel VAR Approach for Emerging Markets," CESifo Working Paper Series 8189, CESifo.
    8. O. P. C. Muhammed Rafi & M. Ramachandran, 2018. "Capital flows and exchange rate volatility: experience of emerging economies," Indian Economic Review, Springer, vol. 53(1), pages 183-205, December.
    9. Barbaros Güneri & A. Yasemin Yalta, 2021. "Does economic complexity reduce output volatility in developing countries?," Bulletin of Economic Research, Wiley Blackwell, vol. 73(3), pages 411-431, July.

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