Exchange rate volatility

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Exchange rate volatility is the volatility (= fluctuation) of exchange rates .

The amount of exchange rate volatility

The level of exchange rate volatility fluctuates significantly both over time and between currencies. Currency crises in particular are characterized by a sharp increase in exchange rate volatility.

In the context of globalization criticism, a disproportion between the actual trading volume and the amounts traded on the currency markets is viewed as worthy of criticism. The bulk of sales is speculative in nature and would result in increased exchange rate volatility. A Tobin tax should be introduced to avoid these transactions . However, the majority of economists interpret the high volumes on the foreign exchange markets as arbitrage transactions that tend to limit exchange rate volatility.

Even after the end of the Bretton Woods fixed exchange rate system, the thesis was put forward that exchange rate volatility was exaggerated and not covered by data from the real economy . However, this thesis has not been empirically proven.

Effect of exchange rate volatility

High exchange rate volatility is often described as damaging to international trade and thus to the global economy. The exchange rate risk increases with increasing exchange rate volatility. The cost of hedging transactions also increases . The result is lower foreign trade .

However, recent research and empirical studies consider the dependency of the trading volume on exchange rate volatility to be low or nonexistent.

However, a negative influence of exchange rate volatility on employment is empirically observed.

literature

  • Frank A. Schmid: On the effects of exchange rate volatility on foreign trade and international production, 1991, ISBN 3-8316-9842-2

swell

  1. ↑ BARTOLINI, LEONARDO AND GORDON M. BODNAR (1996): Are Exchange Rates Excessively Volatile? And What Does "Excessively Volatile" Mean, Anyway? in: IMF Staff Papers, Vol. 43, No. 1, pp. 72-96.
  2. ↑ Hooper, P. and S. Kohlhagen. 1978. The Effect of Exchange Rate Uncertainty on the Prices and Volume of International Trade. Journal of International Economics 8, 483-511.
  3. ↑ Andreas Fischer: The Effects of the Volatility of the Exchange Rate on Swiss Foreign Trade: Estimates Using a Multivariate Approach, Department of Economic Studies, Swiss National Bank (PDF; 488 kB)
  4. ^ Daniel Gros: Germany's Stake in Exchange Rate Stability, Intereconomics , September / October 1996, pp. 236-240