What Makes Currencies Volatile? An Empirical Investigation
AbstractReal effective exchange rate volatility is examined for 90 countries using monthly data from January 1990 to June 2006. Volatility decreases with openness to international trade and per capita GDP, and increases with inflation, particularly under a horizontal peg or band, and with terms - of - trade volatility. The choice of exchange rate regime matters. After controlling for these effects, and independent float adds at least 45% to the standard deviation of the real effective exchange rate, relative to a conventional peg, but must other regimes make little difference. The results are robust to alternative volatility measures and to sample selection bias.
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Bibliographic InfoPaper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 22/2009.
Date of creation: 2009
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- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-26 (All new papers)
- NEP-CBA-2009-09-26 (Central Banking)
- NEP-IFN-2009-09-26 (International Finance)
- NEP-MON-2009-09-26 (Monetary Economics)
- NEP-OPM-2009-09-26 (Open Economy Macroeconomics)
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