Uncertainty and Exchange Rates: Global Dynamics (Well, I Don't Quite Know Anymore)

Jing Lian Suah

MPRA Paper from University Library of Munich, Germany

Abstract: This paper offers two points on the impact of uncertainty and exchange rate shocks on output. (1) A conceptual model where behavioural frictions --- rational inattentiveness and bounded expectations --- interact with uncertainty, generating aggregate fluctuations. Central banks can target these behaviourial frictions to stabilise output and prices. (2) Empirical findings from a panel of advanced and emerging economies. Output and inflation slow in response to uncertainty shocks. Government bond yields moderate and exchange rates depreciate, suggesting within-country and between-country flight-to-safety respectively. Exchange rate appreciation shocks generate similar responses. The Malaysia-specific analysis finds divergent responses in employment and output, likely reflecting compositional effects in more productive tradable and less productive non-tradable sectors. In a panel fixed effects and quantile regression setting, I find indicative interaction between output, exchange rate and uncertainty, and a distributional dimension.

Keywords: Uncertainty; Rational Inattention; Bounded Rationality; VAR (search for similar items in EconPapers)
JEL-codes: E00 E03 (search for similar items in EconPapers)
Date: 2020-11-01
New Economics Papers: this item is included in nep-fdg, nep-isf, nep-mac, nep-mon and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/109087/1/MPRA_paper_109087.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/111822/1/MPRA_paper_111822.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/113682/1/MPRA_paper_113682.pdf revised version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:109087

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().