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What Makes Currencies Volatile? An Empirical Investigation

Listed author(s):
  • Michael Bleaney

    ()

  • Manuela Francisco

Real 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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File URL: http://hdl.handle.net/10.1007/s11079-009-9121-0
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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 21 (2010)
Issue (Month): 5 (November)
Pages: 731-750

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Handle: RePEc:kap:openec:v:21:y:2010:i:5:p:731-750
DOI: 10.1007/s11079-009-9121-0
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/economics/international+economics/journal/11079/PS2

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  1. Hasan, Shahriar & Wallace, Myles, 1996. "Real exchange rate volatility and exchange rate regimes: Evidence from long-term data," Economics Letters, Elsevier, vol. 52(1), pages 67-73, July.
  2. Flood, Robert P. & Rose, Andrew K., 1995. "Fixing exchange rates A virtual quest for fundamentals," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 3-37, August.
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  8. Barisone, Giacomo & Driver, Rebecca L. & Wren-Lewis, Simon, 2006. "Are our FEERs justified?," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 741-759, August.
  9. Michael Bleaney & Manuela Francisco, 2010. "What Makes Currencies Volatile? An Empirical Investigation," Open Economies Review, Springer, vol. 21(5), pages 731-750, November.
  10. Peter B. Clark & Shang-Jin Wei & Natalia T. Tamirisa & Azim M Sadikov & Li Zeng, 2004. "A New Look at Exchange Rate Volatility and Trade Flows," IMF Occasional Papers 235, International Monetary Fund.
  11. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters,in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc.
  12. Tavlas, George & Dellas, Harris & Stockman, Alan C., 2008. "The classification and performance of alternative exchange-rate systems," European Economic Review, Elsevier, vol. 52(6), pages 941-963, August.
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  14. 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.
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  17. Bleaney, Michael F., 1996. "Macroeconomic stability, investment and growth in developing countries," Journal of Development Economics, Elsevier, vol. 48(2), pages 461-477, March.
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  19. repec:ebl:ecbull:v:6:y:2007:i:3:p:1-16 is not listed on IDEAS
  20. Michael Bleaney, 2008. "Openness and Real Exchange Rate Volatility: In Search of an Explanation," Open Economies Review, Springer, vol. 19(2), pages 135-146, April.
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