Abstract
Impact of exchange rate shocks on emerging market economies have been studied extensively; however, what is the origin of those shocks remains unanswered in the literature. The main aim of this paper is to fill this gap. We identify local, regional and global shocks in exchange rate markets for 19 major EMEs on a daily basis by using forward rate unbiasedness hypothesis. We find an asymmetry on the effects of both local and global shocks and also show that depreciating effects of both local and global shocks dominate the appreciating effects for almost all countries sampled. Moreover, we find that the external vulnerability indicators and financial development indicators are the main sources of the level of shocks.
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