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Remoteness and Real Exchange Rate Volatility

Author

Listed:
  • Claudio Bravo-Ortega

    (International Monetary Fund)

  • Julian di Giovanni

    (International Monetary Fund)

Abstract

This paper examines the impact of trade costs on real exchange rate volatility. The relationship is examined by constructing a two-country Ricardian model of trade, based on the work of Dornbusch, Fischer, and Samuelson (1977), which shows that higher trade costs result in a larger nontradables sector, in turn leading to higher real exchange rate volatility. We then construct a remoteness index to proxy for trade costs, and provide empirical evidence supporting the channel. Copyright 2006, International Monetary Fund

Suggested Citation

  • Claudio Bravo-Ortega & Julian di Giovanni, 2006. "Remoteness and Real Exchange Rate Volatility," IMF Staff Papers, Palgrave Macmillan, vol. 53(si), pages 1-6.
    • Handle: RePEc:pal:imfstp:v::y:2006:i:si:p:6
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    References listed on IDEAS

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    Cited by:

    1. Michael Bleaney & Mo Tian, 2012. "Currency Networks, Bilateral Exchange Rate Volatility and the Role of the US Dollar," Open Economies Review, Springer, vol. 23(5), pages 785-803, November.
    2. Aghion, Philippe & Bacchetta, Philippe & Rancière, Romain & Rogoff, Kenneth, 2009. "Exchange rate volatility and productivity growth: The role of financial development," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 494-513, May.
    3. Cesa-Bianchi, Ambrogio & Imbs, Jean & Saleheen, Jumana, 2019. "Finance and synchronization," Journal of International Economics, Elsevier, vol. 116(C), pages 74-87.
    4. Claudio Bravo-Ortega, 2009. "Do Multilateral Trade Linkages Explain Bilateral Real Exchange Rate Volatility?," Working Papers wp304, University of Chile, Department of Economics.
    5. Esposito, Federico, 2019. "Demand Risk and Diversification through Trade," MPRA Paper 99875, University Library of Munich, Germany.
    6. Sèna Kimm Gnangnon, 2021. "Aid for trade and inflation: Exploring the trade openness, export product diversification and foreign direct investment channels," Australian Economic Papers, Wiley Blackwell, vol. 60(4), pages 563-593, December.
    7. Amjad Fakher & Muhammad Akbar & Rana Ejaz Ali Khan, 2021. "Dynamics of Relationship Between Macroeconomic Fundamentals and Exchange Rate: A Comparison of Advanced and Least Developed Countries," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 9(2), pages 166-178, June.
    8. Michael Bleaney & Manuela Francisco, 2010. "What Makes Currencies Volatile? An Empirical Investigation," Open Economies Review, Springer, vol. 21(5), pages 731-750, November.
    9. Eichler, Stefan & Littke, Helge C. N., 2017. "Central bank transparency and the volatility of exchange rates," IWH Discussion Papers 22/2017, Halle Institute for Economic Research (IWH).
    10. Serhan Cevik & Richard D. F. Harris & Fatih Yilmaz, 2017. "Soft power and exchange rate volatility," International Finance, Wiley Blackwell, vol. 20(3), pages 271-288, December.
    11. Liuchun Deng & Yufeng Sun, 2017. "The effects of local elections on national military spending: A cross-country study," Defence and Peace Economics, Taylor & Francis Journals, vol. 28(3), pages 298-318, May.
    12. Esposito, Federico, 2022. "Demand risk and diversification through international trade," Journal of International Economics, Elsevier, vol. 135(C).
    13. Michael F. Bleaney & Mo Tian & Lin Yin, 2017. "De Facto Exchange Rate Regime Classifications: An Evaluation," Open Economies Review, Springer, vol. 28(2), pages 369-382, April.
    14. Michael Bleaney & Mo Tian, 2021. "Reserve Volatility and the Identification of Exchange Rate Regimes," Open Economies Review, Springer, vol. 32(4), pages 701-723, September.
    15. Chaiyasit Anuchitworawong, 2011. "Comment on "Identifying the Relationship Between Trade and Exchange Rate Volatility"," NBER Chapters, in: Commodity Prices and Markets, pages 110-114, National Bureau of Economic Research, Inc.
    16. Eichler, Stefan & Littke, Helge C.N., 2018. "Central bank transparency and the volatility of exchange rates," Journal of International Money and Finance, Elsevier, vol. 89(C), pages 23-49.

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    More about this item

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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