{
  "title": "Are Exchange Rates Excessively Volatile? and What Does \"Excessively Volatile\" Mean, Anyway?",
  "publication": "IMF Working Papers, August 1, 1995",
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  "summary": "Using data for the major currencies from 1973 to 1994, we apply recent tests of asset price volatility to re-examine whether exchange rates have been excessively volatile with respect to the predictions of the monetary model of the exchange rate and of standard extensions that allow for sticky price",
  "sections": [
    {
      "heading": "Study and Methods",
      "content": "- Objective: Re-examine whether exchange rates have been excessively volatile with respect to the predictions of the monetary model of the exchange rate and standard extensions (sticky prices, sluggish money adjustment, time-varying risk premia).\n- Approach: Apply recent tests of asset price volatility (volatility-based tests) to exchange rates for the major currencies.\n- Comparison: Results evaluated against previous regression-based tests."
    },
    {
      "heading": "Data and Sample",
      "content": "- Currency coverage: Major currencies.\n- Sample period: 1973 to 1994."
    },
    {
      "heading": "Key Findings",
      "content": "- Model rejections:\n  - \"Most of the models that we examine are rejected by our volatility-based tests.\"\n  - This result is \"consistent with previous evidence from regression-based tests.\"\n- Volatility conclusion:\n  - \"In general, however, we find that exchange rates have not been excessively volatile relative to movements of their determinants, with respect to the predictions of even the most restrictive version of the monetary model.\"\n- Caveat on measures:\n  - \"Alternative measures of 'volatility', however, may disguise the cause of rejection as excessive exchange rate volatility.\""
    },
    {
      "heading": "Interpretation and Implications",
      "content": "- Despite model rejections, the observed exchange rate variability is broadly in line with determinants implied by monetary-model predictions, including its most restrictive form.\n- Rejection of models can arise from measurement or test-choice issues; different volatility measures can lead to attributing rejection to exchange rate excess volatility when the underlying cause may differ."
    },
    {
      "heading": "Notes for Readers",
      "content": "- This is a Working Paper; the author(s) \"would welcome any comments on the present text.\"\n- Disclaimer: \"The views expressed are those of the author(s) and do not necessarily represent those of the Fund.\"\n\nSource: IMF Working Papers — Are Exchange Rates Excessively Volatile? and What Does \"Excessively Volatile\" Mean, Anyway? by Gordon M. Bodnar and Leonardo Bartolini, August 1, 1995.\n\n---\n\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/are-exchange-rates-excessively-volatile-and-what-does-excessively-volatile-mean-anyway-1891"
    }
  ],
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    "[Markdown version](/en/publications/wp/issues/2016/12/30/are-exchange-rates-excessively-volatile-and-what-does-excessively-volatile-mean-anyway-1891/index.md)",
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    "Authors: Gordon M. Bodnar, Leonardo Bartolini",
    "Published: August 1, 1995",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451850697.001",
    "Objective: Re-examine whether exchange rates have been excessively volatile with respect to the predictions of the monetary model of the exchange rate and standard extensions (sticky prices, sluggish money adjustment, time-varying risk premia).",
    "Approach: Apply recent tests of asset price volatility (volatility-based tests) to exchange rates for the major currencies.",
    "Comparison: Results evaluated against previous regression-based tests.",
    "Currency coverage: Major currencies.",
    "Sample period: 1973 to 1994.",
    "Model rejections:",
    "Volatility conclusion:",
    "Caveat on measures:",
    "Despite model rejections, the observed exchange rate variability is broadly in line with determinants implied by monetary-model predictions, including its most restrictive form.",
    "Rejection of models can arise from measurement or test-choice issues; different volatility measures can lead to attributing rejection to exchange rate excess volatility when the underlying cause may differ.",
    "This is a Working Paper; the author(s) \"would welcome any comments on the present text.\"",
    "Disclaimer: \"The views expressed are those of the author(s) and do not necessarily represent those of the Fund.\""
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