Short Communication - (2025) Volume 13, Issue 2
Received: 03-Mar-2025, Manuscript No. economics-25-172318;
Editor assigned: 05-Mar-2025, Pre QC No. P-172318;
Reviewed: 19-Mar-2025, QC No. Q-172318;
Revised: 24-Mar-2025, Manuscript No. R-172318;
Published:
31-Mar-2025
, DOI: 10.37421/2375-4389.2025.13.514
Citation: Petov, Natalia. ”Currency Volatility: Impacts, Resilience in Emerging Economies .” J Glob Econ 13 (2025):514.
Copyright: © 2025 Petov N. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution
and reproduction in any medium, provided the original author and source are credited.
This research delves into how exchange rate volatility influences economic growth in emerging economies. It highlights a critical point: while currency fluctuations can generally harm growth, the strength of a country's financial development and institutional quality can significantly mitigate this negative impact. In fact, robust financial systems and governance can even help these economies navigate volatility more effectively, sometimes turning a potential disadvantage into an opportunity for resilience [1].
This study examines how exchange rate volatility affects stock market performance, specifically looking for asymmetric effects in both developed and emerging economies. What's interesting here is that the impact isn't always linear or uniform; negative exchange rate shocks might have a different effect on stock markets compared to positive ones. Understanding these asymmetries is crucial for investors and policymakers trying to anticipate market reactions to currency movements [2].
This paper investigates the relationship between exchange rate volatility and international trade flows, particularly focusing on African nations. A key insight is that the level of financial development within these economies plays a significant role in how currency volatility impacts trade. Stronger financial sectors may help businesses hedge against currency risks, thus moderating the negative effects of volatility on export and import volumes, which really matters for trade-dependent regions [3].
Here's the thing about exchange rate volatility and inflation in emerging economies: this study uses a dynamic panel analysis to show that currency fluctuations are a significant driver of price changes. What this really means is that when a country's currency becomes unstable, it can feed directly into domestic inflation, posing a challenge for central banks trying to maintain price stability, especially in less developed financial markets [4].
This paper investigates how exchange rate volatility plays a role in transmitting monetary policy shocks across international borders. It suggests that unstable exchange rates can amplify or dampen the effects of a central bank's policy decisions in one country on others. Essentially, currency fluctuations act as a channel, making global monetary policy coordination even more complex and critical for economic stability [5].
Looking at ASEAN+3 countries, this study explores the connection between exchange rate volatility and Foreign Direct Investment (FDI). The core finding indicates that higher currency volatility can deter FDI, as it introduces greater uncertainty and risk for foreign investors. This means that for countries aiming to attract foreign capital, maintaining a relatively stable exchange rate environment can be a crucial policy lever [6].
Forecasting exchange rate volatility is tough, but this paper offers a comparative analysis of traditional GARCH models versus Artificial Neural Networks. It shows that while GARCH models are a staple, AI-driven approaches, like ANNs, can sometimes capture non-linear patterns and complex relationships more effectively, potentially leading to more accurate predictions of currency fluctuations. This is a game-changer for risk management and financial strategists [7].
This study focuses on how exchange rate volatility impacts the financial performance of industrial enterprises, specifically using data from Czech firms. It highlights that businesses exposed to international markets face considerable risks from currency swings, affecting their profitability, revenues, and overall financial health. For managers, this means proactive hedging strategies and robust financial planning are not just good ideas, they're essential for survival [8].
This research explores the intriguing question of whether traditional exchange rate volatility and inflation affect Bitcoin's own price volatility, using a multiscale approach. What they found is that these traditional macroeconomic factors do influence Bitcoin's price swings, but the nature of this influence can vary across different time horizons. This suggests that while Bitcoin might seem detached, it's not entirely insulated from the dynamics of traditional currency markets [9].
This study zeroes in on the macroeconomic factors that drive exchange rate volatility, particularly within emerging markets. It identifies specific economic indicators and policies that contribute to currency instability, offering valuable insights for policymakers. Understanding these underlying determinants is key to developing strategies that can mitigate excessive currency swings and foster greater economic stability in these often-vulnerable economies [10].
Exchange rate volatility is a pervasive challenge for economies worldwide, especially emerging ones. Its influence stretches across various economic facets, from fundamental growth trajectories to the stability of financial markets. For instance, while currency fluctuations can generally impede economic growth, research highlights that robust financial development and strong institutional quality can significantly buffer this negative impact in emerging economies [1]. In fact, well-developed financial systems and effective governance can help these nations not just cope with volatility, but sometimes transform it into an opportunity for building economic resilience. This suggests that policy efforts to strengthen financial sectors are vital for mitigating currency risks on national growth.
The effects of currency instability are not uniform; they often exhibit asymmetric characteristics. Studies show that negative exchange rate shocks can impact stock market performance differently than positive ones, a critical consideration for investors and policymakers needing to predict market reactions [2]. Beyond stock markets, volatility also affects international trade flows. For African nations, the level of financial development is crucial in determining how currency swings affect trade volumes. Stronger financial sectors empower businesses to hedge against currency risks, softening the adverse effects of volatility on exports and imports, which is especially important for trade-dependent regions [3]. In the ASEAN+3 countries, high currency volatility has been identified as a deterrent to Foreign Direct Investment (FDI), introducing substantial uncertainty for foreign investors [6]. This means maintaining a stable exchange rate environment is a significant policy lever for attracting foreign capital.
Macroeconomic stability is deeply intertwined with exchange rate movements. In emerging economies, currency fluctuations are a significant driver of inflation [4]. When a country's currency is unstable, it can directly fuel domestic price increases, presenting a challenge for central banks aiming to maintain price stability, particularly in less developed financial markets. Furthermore, exchange rate volatility plays a key role in transmitting monetary policy shocks across international borders [5]. Unstable exchange rates can either amplify or dampen the effects of a central bank's policy decisions in one country on others. This channel makes global monetary policy coordination more complex and crucial for overall economic stability. On a micro-level, currency swings pose considerable risks to the financial performance of industrial enterprises, such as Czech firms [8]. This exposure can impact profitability, revenues, and overall financial health, underscoring the necessity for proactive hedging strategies and robust financial planning in businesses operating internationally.
Given the wide-ranging impacts, accurately forecasting exchange rate volatility is paramount. Traditional GARCH models are often used, but advanced Artificial Intelligence (AI) approaches, such as Artificial Neural Networks (ANNs), are demonstrating superior capabilities in capturing non-linear patterns and complex relationships, leading to more precise predictions of currency fluctuations [7]. This represents a significant advancement for risk management and financial strategists. Interestingly, the influence of traditional exchange rate volatility and inflation extends even to novel assets like Bitcoin. Research indicates these macroeconomic factors do affect Bitcoin's price volatility, though the nature of this influence can vary across different time horizons, suggesting Bitcoin is not entirely insulated from conventional currency market dynamics [9]. Ultimately, understanding the macroeconomic factors that drive exchange rate volatility, especially in emerging markets, is essential. Identifying specific economic indicators and policies contributing to instability provides crucial insights for policymakers to mitigate excessive currency swings and foster greater stability [10]. This collective body of research emphasizes the multifaceted nature of exchange rate volatility and its profound implications for global economic health.
This collection of research underscores the multifaceted impact of exchange rate volatility across various economic domains, particularly in emerging economies. It highlights that while currency fluctuations generally hinder economic growth, the strength of financial development and institutional quality can significantly alleviate this negative effect, even turning it into an an advantage for resilience. The studies reveal asymmetric impacts of volatility on stock market performance, with negative shocks differing from positive ones, crucial for investor and policymaker foresight. Furthermore, exchange rate instability negatively affects international trade flows and Foreign Direct Investment, especially in regions like Africa and ASEAN+3 countries, emphasizing the importance of stable currency environments for attracting capital and facilitating trade. The research also links exchange rate volatility directly to domestic inflation in emerging markets, posing significant challenges for central banks in maintaining price stability. Beyond these, currency fluctuations are identified as a critical channel for transmitting monetary policy shocks internationally, complicating global coordination efforts. Addressing the challenges of forecasting, some papers compare traditional GARCH models with advanced Artificial Neural Networks, noting AI's potential for more accurate predictions. The microeconomic impact on industrial enterprises, such as Czech firms, is also examined, stressing the need for robust hedging strategies. Finally, the research even extends to understanding how traditional macroeconomic factors like exchange rate volatility and inflation can influence the price swings of novel assets like Bitcoin, demonstrating that no market is entirely insulated. Collectively, these studies offer valuable insights into the determinants and consequences of currency instability, providing policymakers and financial strategists with essential information for fostering economic stability.
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