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Exchange Rate Volatility and Output Volatility: A Theoretical Approach

Grydaki M & Fountas S (2009) Exchange Rate Volatility and Output Volatility: A Theoretical Approach, Review of International Economics, 17 (3), pp. 552-569.

This paper makes an attempt to determine the factors influencing exchange rate and exchange rate uncertainty, as well as output and output variability. In the context of a small open economy under flexible exchange rates regime it is found that the level both of exchange rate and output is affected by monetary and inflationary shocks, as well as shocks in government spending, output, and trade balance. Further, the uncertainty of exchange rate and output is associated positively with the uncertainty of all shocks while the contemporaneous occurrence of selected shocks imposes either a positive or negative impact on exchange rate and output volatility. Finally, it is shown that the effect of the determinants either of exchange rate volatility or output volatility is very sensitive to the parameter values.

AuthorsGrydaki Maria, Fountas Stilianos
Publication date08/2009
ISSN 0965-7576

Review of International Economics: Volume 17, Issue 3 (AUG 2009)

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