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Liquidity and exchange rate volatility

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  • Thi Hong Hanh Pham

    (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IEMN-IAE Nantes - Institut d'Économie et de Management de Nantes - Institut d'Administration des Entreprises - Nantes - UN - Université de Nantes)

Abstract

Using a large panel dataset covering both advanced and developing countries over the period 1980-2015, this paper does two things. First, it explores the impacts of liquidity on the dynamics of exchange rate. We find evidence of a significant relationship between liquidity and real exchange rate volatility, which is, however, diverse and strongly depends on the way to measure liquidity level. Second, it investigates whether the nature of the linkage between liquidity and real exchange rate depends on the level of financial development of a country. This hypothesis is empirically validated in our study.

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  • Thi Hong Hanh Pham, 2018. "Liquidity and exchange rate volatility," Working Papers halshs-01708633, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01708633
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01708633
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    Keywords

    Exchange rate volatility; Liquidity; Financial development;
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