This note reports the results of two recent studies concerned with exchange rate variability. The first study considers a number of measures of variability of bilateral and effective exchange rates, comparing particularly the periods before and after the introduction of the exchange rate mechanism (ERM) of the EMS It finds no general tendency towards reduced variability in effective rates after introduction of the ERM; bilateral variability within the ERM and non-ERM groups has tended to fall, but between these groups it has increased.
Recent research by the Federal Reserve Bank of New York has found that US and German trade have been adversely affected by exchange rate volatility. Applying the same methods to the equations for UK manufacturing trade volumes and unit values in the Bank's model no significant impact of short-term variability on trade is found for the United Kingdom.
The variability of exchange rates measurement and effects