Abstract
Exchange rate instability has become a key concern within economic policy circles ever since the 1973 breakdown of Bretton Woods agreement; after 47 years, central bankers realize the deleterious effect of exchange rate on the economy in the 12 selected OIC member countries we studied. The aim of this paper is to report the findings on a proposed measure of currency instability, namely the relative volatility, to test it with data relating to 12 OIC member Muslim-majority economies using more than 28 years data. We find that relative volatility is an effective measure for tracking currency instability and exchange rate targeting could be enhanced by including policy bands as well as recommended actions for each movement outside the policy band. Further, relative volatility is significantly correlated with monetary factors suggested by strong theories that drive the exchange rate equilibrium.
| Original language | English |
|---|---|
| Article number | 100517 |
| Number of pages | 10 |
| Journal | Journal of Behavioral and Experimental Finance |
| Volume | 31 |
| Early online date | 17 May 2021 |
| DOIs | |
| Publication status | Published - Sept 2021 |
Bibliographical note
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Funder
Funding Information:This research received national financial grant from the FRGS of Malaysia FRGS 2020–1 at the University Putra Malaysia where the two authors worked at the time of the award. Later in 2019, an internal financial grant was approved by the Sunway University, Malaysia . We are grateful for the financial support and acknowledge the two sources with gratitude. This paper was presented and received useful comments, addressed in the current revised version of the paper, presented at the 21 MFA conference, Minhaj University’s 3rd WIEF conference 2020 and 11th Foundation of Islamic Finance conference at Sunway University March 2021. For any errors, the authors are responsible.
Keywords
- Currency stability
- Volatility
- Relative volatility
- Country risk
- Monetary factors
- Exchange rate index