 On the macroeconomic causes of exchange rate volatilityInternational Journal of Forecasting, 2009, vol. 25, issue 2, 328-350 Abstract: What are the causes of exchange rate volatility? When the second moments implications of theories of exchange rates determination are considered, long-term fundamental linkages between macroeconomic and exchange rate volatility can be envisaged. Moreover, as the exchange rate is an important determinant of aggregate demand, bidirectional causality should be expected. The results of the study support the above intuitions, pointing to important linkages and trade-offs relating exchange rates and macroeconomic volatility, with causality being stronger from macroeconomic volatility to exchange rate volatility than the other way around. An out of sample forecasting exercise shows how conditioning on macroeconomic information does improve medium- to long-term volatility forecasting. Keywords: Exchange; rate; volatility; Macroeconomic; volatility; Long; memory; Structural; change; Fractional; cointegration; Cobreaking; Fractionally; integrated; factor; vector; autoregressive; model; G-7; area (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:25:y:2009:i:2:p:328-350 Access Statistics for this article International Journal of Forecasting is currently edited by R. J. Hyndman More articles in International Journal of Forecasting from Elsevier |
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