Examining the Determinants of Exchange Rate Volatility: A Comparative Study between Sri Lanka, Peru, Paraguay and Ukraine

This study conducts a comparative analysis of the factors influencing exchange rate volatilities, investigating the impact of certain Macroeconomic, Sociocultural, and Institutional factors of Sri Lanka, Peru, Paraguay and Ukraine during the past 25 years (1997–2022). A regression analysis technique was employed using the data collected from secondary sources such as Central Bank of Sri Lanka, International Monetary Fund and World Bank databases and the results were discussed with backing of the literature. The findings of the study revealed that macroeconomic factors have a significant positive impact on exchange rate volatility, only in Sri Lanka. Alternatively, institutional and sociocultural factors show positive impacts on exchange rate volatility, but only in Ukraine. However, in the case of Peru and Paraguay, there was no sensitivity to all three factors, other than the CPIA quality of public administration, within the institutional factors, which showed a slight positive sensitivity in Paraguay. Notably, the comparative analysis reveals that Ukraine exhibits the highest level of exchange rate volatility compared to all other three countries. These findings serve to bridge the empirical and conceptual gaps in the existing literature on exchange rate volatility and may help policymakers to develop sustainable frameworks for exchange rate stability, which is very critical in economic development. The originality of this research lies in its focus on a comparative analysis of exchange rate volatility determinants in four distinct emerging economies: Sri Lanka, Peru, Paraguay, and Ukraine. These countries represent different regions and economic characteristics, offering a diverse range of factors that can influence exchange rate volatility. By comparing these economies, the study provides a unique perspective on the drivers of exchange rate volatility across various contexts.