Suah, Jing Lian (2022): Uncertainty and Exchange Rates: Global Dynamics (Well, I Don't Quite Know Anymore).
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Abstract
This paper offers two points on the impact of uncertainty and exchange rate shocks on output. (1) A conceptual model where behavioural frictions --- rational inattentiveness and bounded expectations --- interact with uncertainty, generating aggregate fluctuations. Central banks can target these behaviourial frictions to stabilise output and prices. (2) Empirical findings from a panel of advanced and emerging economies. Output and inflation slow in response to uncertainty shocks. Government bond yields moderate and exchange rates depreciate, suggesting within-country and between-country flight-to-safety respectively. Exchange rate appreciation shocks generate similar responses. The Malaysia-specific analysis finds divergent responses in employment and output, likely reflecting compositional effects in more productive tradable and less productive non-tradable sectors.
Item Type: | MPRA Paper |
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Original Title: | Uncertainty and Exchange Rates: Global Dynamics (Well, I Don't Quite Know Anymore) |
English Title: | Uncertainty and Exchange Rates: Global Dynamics (Well, I Don't Quite Know Anymore) |
Language: | English |
Keywords: | Uncertainty, Rational Inattention, Bounded Rationality, VAR |
Subjects: | E - Macroeconomics and Monetary Economics > E0 - General > E00 - General E - Macroeconomics and Monetary Economics > E0 - General > E03 - Behavioral Macroeconomics |
Item ID: | 111822 |
Depositing User: | Jing Lian Suah |
Date Deposited: | 05 Feb 2022 08:04 |
Last Modified: | 05 Feb 2022 08:04 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/111822 |
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