Consumption Smoothing and Exchange Rate Volatility

Author/Editor:

Bart Turtelboom

Publication Date:

November 1, 1995

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper analyzes exchange rate behavior in a model where consumers trade goods to diversify shocks to their income. A model with traded and nontraded goods is simulated in a multilateral context based upon historical output correlations for the period 1970–92. Simulation results indicate that the observed volatility of multilateral real exchange rates for the United States, Germany and Japan is not inconsistent with exchange rate volatility implied by consumption-smoothing behavior.

Series:

Working Paper No. 1995/108

Subject:

English

Publication Date:

November 1, 1995

ISBN/ISSN:

9781451853049/1018-5941

Stock No:

WPIEA1081995

Pages:

56

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