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On openness and real exchange rate volatility

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  • Mark J. Holmes

    ()
    (University of Waikato)

  • Sayeeda Bano

    ()
    (University of Waikato)

Abstract

We address the puzzle concerning the inverse relationship between openness and real exchange rate volatility. We argue that the relationship can be explained by increased openness facilitating purchasing power parity. Using New Zealand data, we show that increased openness prolongs real exchange regimes characterised by fast mean-reversion and low volatility.

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File URL: http://www.accessecon.com/pubs/EB/2008/Volume6/EB-08F40021A.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 6 (2008)
Issue (Month): 14 ()
Pages: 1-12

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Handle: RePEc:ebl:ecbull:eb-08f40021

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  1. Michael Bleaney, 2008. "Openness and Real Exchange Rate Volatility: In Search of an Explanation," Open Economies Review, Springer, Springer, vol. 19(2), pages 135-146, April.
  2. Alba, Joseph D. & Papell, David H., 2007. "Purchasing power parity and country characteristics: Evidence from panel data tests," Journal of Development Economics, Elsevier, Elsevier, vol. 83(1), pages 240-251, May.
  3. Devereux, M.B. & Lane, P.R., 2002. "Understanding Bilateral Exchange Rate Volatility," CEG Working Papers, Trinity College Dublin, Department of Economics 20025, Trinity College Dublin, Department of Economics.
  4. Hau, Harald, 2002. "Real Exchange Rate Volatility and Economic Openness: Theory and Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 34(3), pages 611-30, August.
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Cited by:
  1. Sayeeda Bano, 2010. "ASEAN-New Zealand Trade Relations and Trade Potential," Working Papers in Economics, University of Waikato, Department of Economics 10/01, University of Waikato, Department of Economics.

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