Does central bank transparency deter the exchange rate volatility? New evidence from Asian emerging markets

Exchange rate volatility has emerged as a significant chal-lenge for Asian emerging markets since the adoption of the liberalization process. This study examines the influence of central banktransparency on exchange rate volatility using a sample of ten important Asian emerging markets. The study us...

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Veröffentlicht in:Journal of Central Banking Theory and Practice 2023-05, Vol.12 (2), p.133-163
Hauptverfasser: Shamsi, Muhammad Aftab, Mehmood, Ahsan
Format: Artikel
Sprache:eng
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Zusammenfassung:Exchange rate volatility has emerged as a significant chal-lenge for Asian emerging markets since the adoption of the liberalization process. This study examines the influence of central banktransparency on exchange rate volatility using a sample of ten important Asian emerging markets. The study uses a fixed effect re-gression model covering the Asian financial crisis, global financialcrisis, banking crisis, and taper tantrum episodes. Results show thatan increase in central bank transparency has a stabilizing effect onexchange rate volatility, and this effect remains even after controlling for various internal and external factors. The uncertainty of USmonetary policy increases exchange rate volatility, while US eco-nomic policy uncertainty contributes only during the global finan-cial crisis. Interestingly, central bank transparency buffers the effectsof the global financial crisis, indicating that it plays a facilitating rolein maintaining financial stability. Studies that examine the role ofcentral bank transparency in curbing exchange rate volatility, whichis a crucial issue in these markets, are rare in emerging markets' con-text. This research offers interesting findings by using a variety ofrobustness checks.
ISSN:2336-9205
1800-9581
2336-9205
DOI:10.2478/jcbtp-2023-0017