Consumption Smoothing and Exchange Rate Volatility [electronic resource] / Bart Turtelboom.
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TextSeries: IMF Working Papers; Working Paper ; No. 95/108Publication details: Washington, D.C. : International Monetary Fund, 1995Description: 1 online resource (56 p.)ISBN: 1451853041 :ISSN: 1018-5941Subject(s): Exchange Rate | Exchange Rates | Foreign Asset | Net Foreign Asset | Real Exchange Rate | Germany | Japan | United StatesAdditional physical formats: Print Version:: Consumption Smoothing and Exchange Rate VolatilityOnline resources: IMF e-Library | IMF Book Store Abstract: This paper analyzes exchange rate behavior in a model where consumers trade goods to diversify shocks to their income. A model with traded and nontraded goods is simulated in a multilateral context based upon historical output correlations for the period 1970-92. Simulation results indicate that the observed volatility of multilateral real exchange rates for the United States, Germany and Japan is not inconsistent with exchange rate volatility implied by consumption-smoothing behavior.
This paper analyzes exchange rate behavior in a model where consumers trade goods to diversify shocks to their income. A model with traded and nontraded goods is simulated in a multilateral context based upon historical output correlations for the period 1970-92. Simulation results indicate that the observed volatility of multilateral real exchange rates for the United States, Germany and Japan is not inconsistent with exchange rate volatility implied by consumption-smoothing behavior.
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