Economic Quarterly

We study the business cycle properties of exchange rates and other macro-economic variables in a panel of developed and developing countries. We find substantial variation in the degree of co-movement of exchange rates with other macroeconomic variables across countries in our sample. Moreover, the volatility of exchange rates is much larger in developing countries than in developed countries. This larger volatility of exchange rates in developing countries is associated with the characteristics of business cycles and the level of co-movement with other aggregates.