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We empirically investigate the forecasting ability of USD-INR exchange rate volatility models by considering Google Trends data. Within a multiple regression framework, we use historical volatility and liquidity measures to build our benchmark volatility model (Chandra & Thenmozhi, 2014). Moreover, we extend Bulut (2018) to incorporate indexes for 15 keywords (price-related, income-related, and liquidity-related) from Google Trends data into our benchmark volatility model to evaluate the forecasting ability of the models. Our results indicate that Google Trends data can improve volatility prediction and that among the groups of keywords that we consider, the price-related keywords have the best forecasting ability. Incorporating data on searches for “prices” into the model produces the highest reduction in the forecasting error: a 22.75% decrease compared to the level in the benchmark model. Hence, these empirical findings indicate that Google Trends data contain information that influences exchange rate movements.

In September 1999, the Central Bank of Chile eliminated the floating band for the nominal exchange rate, which operated since 1984, and established a free float. This lasted until the burst of the last Argentinean economic crisis in July 2001. Since then, the Central Bank has smoothed out the exchange rate path by selling U.S. dollars and/or issuing U.S. dollar-denominated bonds. We examine the free float period by assessing whether the increase in exchange rate volatility was as sharp as expected. We show that volatility went up, but only slightly.

This chapter attempts to analyze mainly the interactions between the implementation of inflation targeting (IT) policy and performance in the conduct of economic policies (fiscal and exchange rate) in emerging countries. More precisely, empirical studies conducted in this chapter aim to apprehend the feedback effect of this strategy of monetary policy on the budget deficit and volatility of exchange rate performance. This said, we consider the institutional framework as endogenous to IT and analyze the response of authorities to the adoption of this monetary regime. To do this, the retained methodological path in this chapter is an empirical way, based on the econometrics of panel data. First, our contribution to the existing literature is to evaluate the time-varying treatment effect of IT’s adoption on the budget deficit of emerging inflation targeters, using the propensity score matching approach. Our empirical analysis, conducted on a sample of 34 economies (13 IT and 21 non-IT economies) for the period from 1990 to 2010, show a significant impact of IT on the reduction of budget deficit in emerging countries having adopted this monetary policy framework. Therefore, we can say that the emerging government can benefit ex post and gradually from a decline in their public deficits. Retaining the same econometric approach and sample, we tried secondly to empirically examine whether the adoption of IT in emerging inflation targeters has been effectively translated by an increase in the nominal effective exchange rate volatility compared to non-IT countries. Our results show that this effect is decreasing and that this volatility is becoming less important after the shift to this monetary regime. We might suggest that this indirect and occasional intervention in the foreign exchange market can be made by fear of inflation rather than by fear of floating hence in most emerging countries that have adopted the IT strategy. Finally, we can say that our conclusions corroborate the literature of disciplining effects of IT regime on fiscal policy performance as well as the two controversial effects of IT on the nominal effective exchange rate volatility.

Inflation targeting started in 1990 and since then, many industrial and emerging market economies have adopted it. This chapter attempts to study the impact of adoption of inflation targeting on major macroeconomic outcomes across the emerging market countries, by running a panel data study from 1980 to 2018. This chapter obtains mixed results with respect to different macroeconomic indicators. The empirical results indicate that inflation targeting has been successful in bringing down inflation, inflation volatility and GDP growth rate volatility, while inconclusive results are obtained for volatility in exchange rates.

This study analyzes the impact of exchange rate volatility (ERV) on inbound tourist arrivals from four ASEAN countries namely Indonesia, the Philippines, Singapore, and Thailand during 1970–2017. Volatility in the exchange rates between the tourist currency and ringgit Malaysia is measured using the Generalized Autoregressive Conditional Heteroskedasticity model. The results from Autoregressive Distributed Lagged models indicate that ERV has no significant impact on tourist arrivals from ASEAN to Malaysia. This implies that tourists from these countries may not be sensitive to ERV when choosing Malaysia as their travel destination. There are two possible explanations for the results. First, Malaysian ringgit has been depreciating against major currencies and regional currencies in recent years, which makes ringgit relatively cheaper than other ASEAN currencies. Second, the empirical results of the study support the argument that ERV has a more serious impact on tourist spending compared to tourist arrivals.

To study the determinants and effects of “Operational” exchange rate exposure resulting from the mismatch between cost and revenues of the firms by using data on 500 Indian firms.

We conduct detailed empirical analysis of the determinants of firm level exposure and their impact using panel regression techniques and conduct several robustness tests to confirm the validity of these results.

Among other factors, exchange rate volatility appears as a significant determinant of average firm level exposure with the direction of relationship supporting the presence of “Moral Hazard” in firm’s risk-taking behavior. Further large “operational” exposure is associated with significantly lower output growth, profitability, and capital expenditure during episodes of large currency depreciation at the firm level.

This paper leaves several questions to be answered. Further research is called for to explore the nature of distortions in the production process encouraged by exchange rate volatility and their impact on firm level productivity. Looking at the relationship between the use of financial and operational hedges is another fruitful area of future research.

Our results have important implications for policy makers worried about mitigating the impact of exogenous shocks. Implicit and explicit guarantees with regards to the value of exchange rate tend to raise the vulnerability of the economy to exchange rate shocks at same time that they encourage capital expenditures and possibly output growth during “normal” times. Our findings indicate that the policy makers must take into account the incentive effects of their intervention in foreign exchange markets.

Unlike the existing papers in the literature, we use a measure of “operational” currency exposure based on foreign currency revenues and costs of firms. In most of the existing papers the focus is on the mismatch between the currency denomination of assets and liabilities. Little attention has been paid to the currency mismatch between costs and revenues of the firms. Such “operational” mismatches are potentially equally important and deserve attention of policy makers and academics alike.

This chapter analyzes the exchange rate pass-through (ERPT) into different prices for 12 euro area (EA) countries. We provide new up-to-date estimates of ERPT by paying attention to either the time-series properties of data and variables endogeneity. Using VECM framework, we examine the pass-through at different stages along the distribution chain, that is, import prices, producer prices, and consumer prices. When carrying out impulse response functions analysis, we find a higher pass-through to import prices with a complete pass-through (after one year) detected for roughly half of EA countries. These estimates are relatively large compared to single-equation literature. We denote that the magnitude of the pass-through of exchange rate shocks declines along the distribution chain of pricing, with the modest effect recorded for consumer prices. When assessing for the determinant of cross-country differences in the ERPT, we find that inflation level, inflation volatility, and exchange rate persistence are the main macroeconomic factors influencing the pass-through almost along the pricing chain. Thereafter, we have tested for the decline of the response of consumer prices across EA countries. According to multivariate time-series Chow test, the stability of ERPT coefficients was rejected, and the impulse responses of consumer prices over 1990–2010 provide an evidence of general decline in rates of pass-through in most of the EA countries. Finally, using the historical decompositions, our results reveal that external factors, that is, exchange rate and import prices shocks, have had important inflationary impacts on inflation since 1999 compared to the pre-EMU period.