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The global economy has witnessed great economic volatility in the first two decades of the 21st century. Yet over this period, and in particular during Covid-19, exchange rates remained unusually stable. This column presents evidence suggesting that monetary policy is a main driver of exchange rate volatility. Only when interest rate policy started to become much more uncertain over the past 15-18 months has more normal exchange rate volatility returned, albeit not at the level of the 1970s and 1980s.


Ilzetzki, Ethan, Carmen Reinhart, and Kenneth Rogoff. "Exchange Rate Volatility and Monetary Policy." Vox EU, April 4, 2023.