Template-Type: ReDIF-Paper 1.0
Author-Name: Shaista Amod
Author-Name: Shakill Hassan
Title: Variance Bounds as Thresholds for Excessive Currency Volatility Inflation Targeting Emerging Economies
Abstract: At what level does a currencys volatility become excessive, in a concrete sense? Any claim that an exchange rate is excessively volatile needs a benchmark for normal variability. We compute variance bounds implied by exchange rate models as the norm, for a set of particularly volatile emerging market currencies; and find that long-run exchange rate volatility does not breach the upper bound implied by the present value of underlying fundamentals - for each currency in our sample, except the Brazilian real. However, nominal exchangerate variances get closer to implied upper bounds under inflation targeting. We also find a reduction in real exchange rate misalignment under inflation targeting.
Creation-Date: 2014-12-02
File-URL: http://www.resbank.co.za/content/dam/sarb/publications/working-papers/2014/6516/WP1409.pdf
File-Format: application/pdf
File-Function: Revision
Number: 6516
Handle: RePEc:rbz:wpaper:6516