Consumption and exchange rate uncertainty: Evidence from selected Asian countries
Bernard Njindan Iyke and
Sin-Yu Ho ()
The World Economy, 2020, vol. 43, issue 9, 2437-2462
We set out to assess the effects of exchange rate uncertainty on real consumption in selected Asian countries. Consumption influences business cycles, which in turn shape short‐run monetary policy decisions. Hence, understanding factors driving consumption is appealing to policymakers. To date, few studies have analysed the effects of uncertainty on consumption. The available ones generally focus on the long‐run effects, in spite of the fact that the short‐run persistence and adjustments to equilibrium are equally relevant. Our study takes these limitations seriously by distinguishing the short‐ and long‐run effects of exchange rate uncertainty on consumption. Using a flexible dynamic panel data technique that allows long‐run effects to be homogeneous and the short‐run effects to be heterogeneous, we find that uncertainty impedes consumption in the long run. In the short run, however, the effects are immaterial. This evidence remains robust to the measure of uncertainty, asymmetric uncertainty, inflation and the global financial crisis of 2008. By decomposing uncertainty into its temporary and permanent components, we find that the latter have a stronger effect on consumption in the long run than the former. Although both components demand policy attention, the evidence suggests that policymakers should be more concerned with permanent uncertainty.
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Working Paper: Consumption and Exchange Rate Uncertainty: Evidence from Selected Asian Countries (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bla:worlde:v:43:y:2020:i:9:p:2437-2462
Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0378-5920
Access Statistics for this article
The World Economy is currently edited by David Greenaway
More articles in The World Economy from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().