This paper explores the hypothesis that high volatility of real and nominal exchange rates may be due to the fact that local currency pricing eliminates the pass-through from changes in exchange rates to consumer prices. Exchange rates may be highly volatile because in a sense they have little effect on macroeconomic variables. The paper shows the ingredients necessary to construct such an expl...

Exchange rate volatility, or a continuous fluctuation in the currency has been major concern recent years due to its impact on economic activities. No wonder concerns have raised regarding connection between exchange fluctuations and their effects overall economy. The motivation for study is based fact that most emerging economies experiencing inflationary tendencies are more likely experience ...