Chaos and order in exchange rates

This paper asks what accounts for differing levels of exchange rate variance among countries over time. It suggests that the type of political system (i.e., number of policy veto players) is a determinant of policy outcomes in foreign exchange markets. If exchange rate decisions are made by larger groups of actors, we are more likely to witness greater chaos and thus variability in exchange rate outcomes. When we recognise that chaos is part of the background reality of exchange rates, we are more likely to be able to see the order organising it all.