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Sources of Real Exchange Rate Volatility and International Financial Integration: A Dynamic GMM Panel Approach

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  • Guglielmo Maria Caporale
  • Thouraya Hadj Amor
  • Christophe Rault

Abstract

The aim of this paper is to provide some new empirical evidence on the determinants of volatility of real exchange rates in emerging countries, focusing on the role of international financial integration in particular. A reduced-form model is estimated using the GMM method for dynamic panels over the period 1979-2004 for a sample of 39 developing countries grouped into three regions (Latin America, Asia and MENA). Our findings suggest that different types of shocks (external, real and monetary) can account for volatility of real exchange rates in emerging economies, with international financial integration being a major driving force. Therefore, financial liberalisation and integration should be pursued only gradually in emerging countries.

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  • Guglielmo Maria Caporale & Thouraya Hadj Amor & Christophe Rault, 2011. "Sources of Real Exchange Rate Volatility and International Financial Integration: A Dynamic GMM Panel Approach," CESifo Working Paper Series 3645, CESifo.
    • Handle: RePEc:ces:ceswps:_3645
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    Cited by:

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    3. Victor Shevchuk & Roman Kopych, 2021. "Exchange Rate Volatility, Currency Misalignment, and Risk of Recession in the Central and Eastern European Countries," Risks, MDPI, vol. 9(5), pages 1-19, May.
    4. Manuel BENAZIC & Ines KERSAN-SKABIC, 2016. "The determinants of exchange rate in Croatia," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 7, pages 125-150, June.

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    More about this item

    Keywords

    emerging economies; real exchange rate; volatility; financial integration; GMM method; dynamic panel;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F00 - International Economics - - General - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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