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Does lower exchange rate volatility influence economic growth?: A study about the relationship between exchange rate volatility and economic growth.
Jönköping University, Jönköping International Business School.
2019 (English)Independent thesis Advanced level (degree of Master (One Year)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

Introduction – The introduction gives background to exchange rate volatility and the negative effects on economic growth that emerges when the exchange rate volatility is high.  Exchange rate volatility can affect economic growth in different ways such as establishing trade barriers or investment uncertainty. Previous studies have become quite outdated and the studies that have focused around the EMU have only compared smaller economies, hence this paper investigates the topic for developed economies and with new up-to-date data. The paper also examines two different types of exchange rate volatility, effective nominal exchange rate volatility and nominal exchange rate volatility to test if the choice of exchange rate volatility has an impact on the results. The sample for the paper contains the 36 OECD countries and the time period is 2000-2016.  

Purpose – The purpose of this study is to explore how exchange rate volatility affects growth for the OECD countries. The paper also looks at what the effect of adopting the Euro as a primary currency has been for the countries in the OECD sample when looking at the exchange rate volatility and economic growth.

Method – This study is conducted with a quantitative methodology, investigating a sample of 36 countries over 17 time periods from 2000-2016. The effect from exchange rate volatility on growth is analyzed through a content analysis and four panel-data regressions. This study also introduces a causality test to see if the exchange rate affects the economic growth or if economic growth affects the exchange rate volatility.

Conclusion – The paper finds that both measures of exchange rate volatility have a negative effect on economic growth. There is also evidence that adopting the Euro as your currency for the time period has been negative for economic growth. Regarding the causality between exchange rate volatility and economic growth the paper finds evidence for a bidirectional causality, meaning that exchange rate volatility affects economic growth and economic growth affects exchange rate volatility.

Place, publisher, year, edition, pages
2019. , p. 44
Keywords [en]
Exchange rate volatility. Economic growth
National Category
Economics
Identifiers
URN: urn:nbn:se:hj:diva-43976ISRN: JU-IHH-NAA-2-20190130OAI: oai:DiVA.org:hj-43976DiVA, id: diva2:1319941
Subject / course
JIBS, Economics
Supervisors
Examiners
Available from: 2019-06-13 Created: 2019-06-03 Last updated: 2019-06-13Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
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