Soft Power and Exchange Rate Volatility
IMF Working Papers, March 20, 2015
Source details
- Canonical URL
- Soft Power and Exchange Rate Volatility
Other formats
Bibliographic details
- Authors: Serhan Cevik, Richard Harris, Fatih Yilmaz
- Published: March 20, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475530520.001
Overview
- Standard models based exclusively on macro-financial variables have made little progress in explaining the behavior of exchange rates.
- This paper introduces a set of “soft power” factors capturing a country’s demographic, institutional, political and social underpinnings to uncover determinants of exchange rate volatility over time and across countries.
- Empirical results are based on a balanced panel dataset comprising 115 countries during the period 1996–2011.
Data and Methodology
- Dataset: balanced panel of 115 countries, period 1996–2011.
- Estimation: results are generally robust across different estimation methodologies.
- Duration/length: Pages: 35; Volume: 2015; Issue: 063; Series: Working Paper No. 2015/063; Stock No: WPIEA2015063; DOI: https://doi.org/10.5089/9781475530520.001; ISBN: 9781475530520; ISSN: 1018-5941.
Key Findings
- High degree of persistence in exchange rate volatility, especially in emerging market economies.
- After controlling for standard macroeconomic factors, the following “soft power” variables have a statistically significant influence on the level of exchange rate volatility across countries:
- an index of voice and accountability
- life expectancy
- educational attainment
- the z-score of banks
- the share of agriculture relative to services
Implications and Analysis
- Incorporating demographic, institutional, political and social variables (the “soft power” factors) helps explain cross-country and over-time variation in exchange rate volatility that macro-financial models alone have not captured.
- The persistence of volatility suggests that country-specific structural and institutional features matter for exchange-rate dynamics, with particular relevance for emerging market economies.
Serhan Cevik, Richard Harris, and Fatih Yilmaz. "Soft Power and Exchange Rate Volatility", IMF Working Papers 2015, 063 (2015), accessed 9/11/2026, https://doi.org/10.5089/9781475530520.001
Content in this bundle
- 1. Exchange Rate Volatility