Persistence in the Variability of Daily Exchange Rates

Author/Editor:

George C. Tsibouris

Publication Date:

October 1, 1991

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:

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.

Series:

Working Paper No. 91/104

Subject:

English

Publication Date:

October 1, 1991

ISBN/ISSN:

9781451852738/1018-5941

Stock No:

WPIEA1041991

Format:

Paper

Pages:

26

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