Consumption and Exchange Rate Uncertainty: Evidence from Selected Asian Countries
Sin-Yu Ho and
Bernard Njindan Iyke
MPRA Paper from University Library of Munich, Germany
Abstract:
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. In the extant literature, 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 this limitation 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, the role of consumer prices, 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.
Keywords: Real Consumption; Exchange Rate Uncertainty; Asian Countries. (search for similar items in EconPapers)
JEL-codes: C23 E31 F31 (search for similar items in EconPapers)
Date: 2017-07
New Economics Papers: this item is included in nep-mac and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)
Downloads: (external link)
https://mpra.ub.uni-muenchen.de/80096/1/MPRA_paper_80096.pdf original version (application/pdf)
Related works:
Journal Article: Consumption and exchange rate uncertainty: Evidence from selected Asian countries (2020) 
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:80096
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 ().