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Nominal exchange rate volatility, relative price volatility, and the real exchange rate

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  • Ganguly, Srideep
  • Breuer, Janice Boucher

Abstract

We model real exchange rate, nominal exchange rate, and relative price volatility using real and nominal factors. We analyze these volatility measures across developing and industrialized countries. We find that the inclusion of nominal factors achieves a sizable reduction in the real exchange rate volatility spread between developing and industrialized countries. In addition, we find that nominal factors matter to real exchange rate volatility in the short run and the long run, and that for developing countries, a higher share of real exchange rate volatility stems from relative price volatility.

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File URL: http://www.sciencedirect.com/science/article/B6V9S-4XT3HGV-1/2/c066c2aa0406b912481d132ac485286c
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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 29 (2010)
Issue (Month): 5 (September)
Pages: 840-856

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Handle: RePEc:eee:jimfin:v:29:y:2010:i:5:p:840-856

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Web page: http://www.elsevier.com/locate/inca/30443

Related research

Keywords: Real exchange rate Nominal exchange rate Volatility Variance;

References

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  1. Cheung, Yin-Wong & Lai, Kon S. & Bergman, Michael, 2004. "Dissecting the PPP puzzle: the unconventional roles of nominal exchange rate and price adjustments," Journal of International Economics, Elsevier, vol. 64(1), pages 135-150, October.
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Citations

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Cited by:
  1. Vithessonthi, Chaiporn, 2014. "Monetary policy and the first- and second-moment exchange rate change during the global financial crisis: Evidence from Thailand," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 170-194.
  2. David Parsley & Helen Popper, 2010. "Understanding Real Exchange Rate Movements With Trade In Intermediate Products," Pacific Economic Review, Wiley Blackwell, vol. 15(2), pages 171-188, 05.
  3. Breuer, Sebastian & Klose, Jens, 2013. "Who gains from nominal devaluation? An empirical assessment of Euro-area exports and imports," Working Papers 04/2013, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
  4. Vithessonthi, Chaiporn & Tongurai, Jittima, 2013. "Unremunerated reserve requirements, exchange rate volatility, and firm value," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 358-378.
  5. Vithessonthi, Chaiporn & Tongurai, Jittima, 2013. "The perils of a central bank's capital control: How substantial is the effect on firm value?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 111-135.
  6. Mahbub Morshed, A.K.M. & Turnovsky, Stephen J., 2011. "Real exchange rate dynamics: The role of elastic labor supply," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1303-1322.

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