Are exchange rates determined by macroeconomic factors?

Geoffrey Williams, Ashok Parikh, David Bailey

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)


In this study, we consider 15 countries and examine the relationship between exchange rate volatility and macroeconomic volatility. We show that, in general, empirical support for the existence of a link between exchange rates and macroeconomic fundamentals is very weak and that other factors are more important in casting light on the behaviour of exchange rates. In particular, we investigate the links between risk premia and exchange rates across our sample of countries. Using ARCH and GARCH techniques, we illustrate that despite the targeting policies of the ERM, risk premia are evident for the majority of countries in our sample.
Original languageEnglish
Pages (from-to)553-567
Number of pages15
JournalApplied Economics
Issue number4
Publication statusPublished - 1 Apr 1998

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