Exchange rate volatility and economic growth

Abstract

This paper examines the impact of exchange rate volatility on economic growth. An empirical investigation based on a sample of 45 developing and emerging countries over the period of 1985~2015 is conducted using the difference and system generalized method of moments estimators. Findings suggest that the generalized autoregressive conditional heteroskedasticity-based measure of nominal and real exchange rate volatility has a negative impact on economic growth. Also, the effect of exchange rate volatility depends on the exchange rate regimes and financial openness, that is, volatility is more harmful when countries adopt flexible exchange rate regimes and financial openness.