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The Effect of the Nominal Exchange Rate Regime on Real Exchange Rate Variability

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Abstract

This paper examines the effect of the nominal exchange rate regime on real exchange variability, specifi cally testing the hypothesis that real exchange rates are more volatile under fl exible than under fi xed exchange rates. To avoid the problem of distinguishing between de facto and de jure exchange rate regimes, fi ve quantitative measures of nominal exchange rate fl exibility are used. The results show that the nominal exchange rate regime does matter, particularly for OECD countries, given the observed failure of purchasing power parity. However, the results also show that there are some missing variables that are bound to affect real exchange rate variability.

Suggested Citation

  • Moosa , Imad A. & Bhatti, Razzaque H., 2006. "The Effect of the Nominal Exchange Rate Regime on Real Exchange Rate Variability," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 59(3), pages 355-381.
    • Handle: RePEc:ris:ecoint:0080
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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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