Exchange Rate Volatility and Main Characteristics of Foreign Exchange Markets in Developing and Transition Economies, 20011
|Macroeconomic control variables6|
|Consumer Price Inflation||positive||***||positive||100||99|
|Exchange rate regimes|
|No separate legal tender||negative||negative||98||2|
|Currency board arrangements||positive||positive||95||11|
|Other conventional fixed peg arrangements7||negative||negative||65||0|
|Against a single currency||positive||positive||71||0|
|Against a composite||negative||negative||96||0|
|IMF-supported or other monetary program||positive||positive||96||0|
|Exchange rates within crawling bands||negative||***||negative||100||98|
|Article VIII status||negative||**||negative||100||88|
|With exchange restrictions and multiple currency practices||negative||negative||100||0|
|Article XIV status||positive||**||positive||100||88|
|With exchange restrictions and multiple currency practices||positive||**||positive||100||83|
|Article XIV restrictions||positive||*||positive||100||64|
|Article VIII restrictions||positive||**||positive||100||87|
|Without exchange restrictions and multiple currency practices||positive||**||positive||100||88|
|Foreign exchange market structure|
|With electronic trading platforms||negative||*||negative||100||72|
|With Reuters brokered systems||negative||positive||52||0|
|Other selected factors|
|Restrictions on monetary use of domestic currency by nonresidents|
|Holding domestic notes and coins.||negative||*||negative||100||81|
|Denominating nonfinancial contracts in domestic currency||negative||**||negative||100||99|
|Net foreign exchange open position limits10||negative||**||negative||100||84|
|Existence of a foreign exchange dealers’ association||negative||**||negative||100||89|
The cross-section regressions are estimated by ordinary least squares, controlling for macroeconomic variables. The dependent variable is NEER volatility measured as the standard deviation of the log of daily NEER returns in 2001. Most variables are dummy variables so that a significant positive variable would mean a higher mean volatility of the group after controlling for macroeconomic variables. Significance at the 1,5, and 10 percent level are expressed as three, two, and one asterisks, respectively.
A total of 85 countries were included in the regression.
To test the robustness of the results, a bootstrap analysis was conducted by which 100 regressions were run on randomly selected subsamples representing 90 percent of the number of observations in the full sample.
Percent of regressions with the corresponding sign.
Percent of regressions in which the variable was statistically significant at the 10 percent significance level.
The control variables were chosen by a model selection algorithm among a list of 20 candidate variables. Among the variables that were not significant were the current account deficit, net private sector capital flows, and different measures of reserve adequacy.
Including de facto peg arrangements under managed floating.
With no preannounced path for the exchange rate.
Excludes countries where banks cannot hold net open positions or conduct foreign exchange operations on their own behalf.
Includes net open position limits expressed in percent of capital or as a fixed nominal amount.