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Real exchange rate volatility, financial crises and nominal exchange regimes

Listed author(s):
  • Amalia Morales-Zumaquero

    ()

    (Departamento de Teoría e Historia Económica, Facultad de Ciencias Económicas y Empresariales, Universidad de Málaga)

  • Simón Sosvilla-Rivero

    ()

    (Departamento de Economía Cuantitativa, Facultad de Ciencias Económicas y Empresariales, Universidad Complutense de Madrid)

This paper examines the sources of real exchange rate (RER) volatility in eighty countries around the world, during the period 1970 to 2011. Our main goal is to explore the role of nominal exchange rate regimes and financial crises in explaining the RER volatility. To that end, we employ two complementary procedures that consist in detecting structural breaks in the RER series and decomposing volatility into its permanent and transitory components. The results confirm that exchange rate volatility does increase with the global financial crises and detect the existence of an inverse relationship between the degree of flexibility in the exchange rate regime and RER volatility using a de facto exchange rate classification.

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File URL: http://www.aeefi.com/RePEc/pdf/defi12-05.pdf
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Paper provided by Asociación Española de Economía y Finanzas Internacionales in its series Working Papers with number 12-05.

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Length: 56 pages
Date of creation: Oct 2012
Handle: RePEc:aee:wpaper:1205
Contact details of provider: Web page: http://www.aeefi.com

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  1. Baxter, Marianne & Stockman, Alan C., 1989. "Business cycles and the exchange-rate regime : Some international evidence," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 377-400, May.
  2. Kocenda, Evzen & Valachy, Juraj, 2006. "Exchange rate volatility and regime change: A Visegrad comparison," Journal of Comparative Economics, Elsevier, vol. 34(4), pages 727-753, December.
  3. Baum, Christopher F. & Caglayan, Mustafa, 2010. "On the sensitivity of the volume and volatility of bilateral trade flows to exchange rate uncertainty," Journal of International Money and Finance, Elsevier, vol. 29(1), pages 79-93, February.
  4. Sarno, Lucio & Valente, Giorgio, 2006. "Deviations from purchasing power parity under different exchange rate regimes: Do they revert and, if so, how?," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 3147-3169, November.
  5. Hau, Harald, 2002. "Real Exchange Rate Volatility and Economic Openness: Theory and Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(3), pages 611-630, August.
  6. BAI, Jushan & PERRON, Pierre, 1998. "Computation and Analysis of Multiple Structural-Change Models," Cahiers de recherche 9807, Universite de Montreal, Departement de sciences economiques.
  7. Reinhart, Carmen, 2002. "A Modern History of Exchange Rate Arrangements: Chartbook, 1946-2001," MPRA Paper 13192, University Library of Munich, Germany.
  8. Roberto Chang & Andres Velasco, 2001. "A Model of Financial Crises in Emerging Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 116(2), pages 489-517.
  9. James H. Stock & Mark W. Watson, 2002. "Has the Business Cycle Changed and Why?," NBER Working Papers 9127, National Bureau of Economic Research, Inc.
  10. Michael P. Dooley, 1997. "A Model of Crises in Emerging Markets," NBER Working Papers 6300, National Bureau of Economic Research, Inc.
  11. Rong Qian & Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "On Graduation from Default, Inflation and Banking Crises: Elusive or Illusion?," NBER Chapters, in: NBER Macroeconomics Annual 2010, Volume 25, pages 1-36 National Bureau of Economic Research, Inc.
  12. 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.
  13. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
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