Consumption Smoothing and Exchange Rate Volatility

Download or read book Consumption Smoothing and Exchange Rate Volatility written by Mr.Bart Turtelboom and published by International Monetary Fund. This book was released on 1995-11-01 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.