## Persistence in the Variability of Daily Exchange Rates

_IMF Working Papers, October 1, 1991_

## Source details

**Canonical URL:** [Persistence in the Variability of Daily Exchange Rates](https://www.imf.org/en/publications/wp/issues/2016/12/30/persistence-in-the-variability-of-daily-exchange-rates-980)

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- [Markdown version](/en/publications/wp/issues/2016/12/30/persistence-in-the-variability-of-daily-exchange-rates-980/index.md)
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## Bibliographic details
- Authors: George C. Tsibouris
- Published: October 1, 1991
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451852738.001

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### Core findings and argument
- Rational speculation in foreign exchange trading is often assumed to dampen exchange rate fluctuations by bringing the market back to fundamentals.
- Information congestion provides incentives for traders to follow positive feedback strategies.
- Positive feedback strategies 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.

### Summary (author abstract)
- 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.

### Subjects and keywords
- Subjects: Currencies, Currency markets, Exchange rate adjustments, Exchange rate analysis, Exchange rates, Financial markets, Foreign exchange, Money
- Keywords: Currencies, Currency markets, deutsche mark, dollar expectation, Exchange rate adjustments, Exchange rate analysis, Exchange rates, larger-than-average yen depreciation, math, pound sterling, sell-off effect, U.S. dollar, WP

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/persistence-in-the-variability-of-daily-exchange-rates-980_