Sources of Asymmetric Shocks: The Exchange Rate or Other Culprits?

Lubos Komarek () and Michal Skořepa ()

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: We analyze and quantify the determinants of asymmetric shocks showing up in the form of medium-term real exchange rate (RER) changes. First, we discuss sources of asymmetric shocks causing exchange rate variability and the role of the RER as a shock generator. Second, we use data for 21 advanced and late-transition economies to gauge the extent to which medium-term bilateral real exchange rate variability can be explained by various fundamental factors. Using Bayesian model averaging, we find that out of 22 factors under consideration, four types of dissimilarities within a given pair of economies are likely to be included in the true model: dissimilarities as regards (i) financial development, (ii) per capita income growth, (iii) central bank independence, and (iv) the structure of the economy. A regression based on these four factors indicates that these factors explain about one third of the behavior of the three-year RER variability for the whole sample and almost half of the behavior of the three-year RER variability for the RERs involving specifically the euro. The remaining part of the total variability represents an estimate of the influence of the exchange rate market itself (together with the influence of fundamental price level or nominal exchange rate determinants not captured by the regressors used).

Keywords: Asymmetric shocks; Bayesian model averaging; OCA; real exchange rate (search for similar items in EconPapers)
JEL-codes: E52 E62 F31 (search for similar items in EconPapers)
Date: 2013-12
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cnb.cz/export/sites/cnb/en/economic-re ... wp/cnbwp_2013_12.pdf

Related works:
Journal Article: Sources of asymmetric shocks: The exchange rate or other culprits? (2015)
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:cnb:wpaper:2013/12

Access Statistics for this paper

More papers in Working Papers from Czech National Bank, Research and Statistics Department Contact information at EDIRC.
Bibliographic data for series maintained by Tomas Karhanek ().