## Soft Power and Exchange Rate Volatility

_IMF Working Papers, March 20, 2015_

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**Canonical URL:** [Soft Power and Exchange Rate Volatility](https://www.imf.org/en/publications/wp/issues/2016/12/31/soft-power-and-exchange-rate-volatility-42795)

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- [Markdown version](/en/publications/wp/issues/2016/12/31/soft-power-and-exchange-rate-volatility-42795/index.md)
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## 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

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### 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*

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## Content in this bundle

- **1.   Exchange Rate Volatility**
  - [1.   Exchange Rate Volatility (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2015/_wp1563.pdf.md){rel="alternate" type="text/markdown"}
  - [1.   Exchange Rate Volatility (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2015/_wp1563.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/soft-power-and-exchange-rate-volatility-42795_