Persistence in the Variability of Daily Exchange Rates

George Tsibouris

No 1991/104, IMF Working Papers from International Monetary Fund

Abstract: Rational speculation in foreign exchange trading is often assumed to dampen exchange rate fluctuations by bringing the market back to fundamentals. Nevertheless, information congestion provides incentives for traders to follow positive feedback strategies which result in persistent and volatile exchange rate behavior by magnifying the impact of exogenous shocks. Empirical evidence is presented which is consistent with such autocatalytic effects.

Keywords: WP; math; U.S. dollar; deutsche mark; pound sterling; dollar expectation; larger-than-average yen depreciation; sell-off effect; Exchange rates; Currencies; Exchange rate analysis; Exchange rate adjustments; Currency markets (search for similar items in EconPapers)
Pages: 26
Date: 1991-10-01
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