Consumption Smoothing and Exchange Rate Volatility
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:
Consumption External position Foreign assets Foreign exchange International trade National accounts Real effective exchange rates Real exchange rates Trade balance
English
Publication Date:
November 1, 1995
ISBN/ISSN:
9781451853049/1018-5941
Stock No:
WPIEA1081995
Pages:
56
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