Factors driving exchange rate volatility in emerging countries

Abstract

Since the collapse of the Bretton Woods, currencies across the world are exposed to significant fluctuations. Such fluctuations are especially magnified in emerging economies which are dependent on global capital flows to fund their current account deficits. Excess volatility is detrimental for international trade, which is an important element of growth for emerging countries. In this paper we look at the macroeconomic factors that drive exchange rate volatility in these countries and see if these are common factors or if they vary across countries.