Czech paper deconstructs exchange rate variability in advanced economies

Economic fundamentals cause just a third of exchange rate variability

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Economic fundamentals only comprise one-third of the medium-term exchange rate variability experienced by advanced economies, according to a Czech National Bank working paper published last week.

In Sources of Asymmetric Shocks: The Exchange Rate or Other Culprits? Michal Skořepa and Luboš Komárek say a floating exchange rate can work as an "absorber" of asymmetric shocks – including changes in foreign monetary policy, productivity and terms of trade – but can also generate shocks that reflect

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