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Real Exchange Rate Variability: An Empirical Analysis of the Developing Countries Case

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  • Sebastian Edwards

Abstract

The purpose of this paper is to investigate the potential role of monetary and real factors in explaining real exchange rate variability in developing countries. For this purpose two indexes of real effective exchange rate variability that measure short-term and long-term variability were constructed for 30 countries. The results obtained, using a generalized least squares procedures on cross section data, indicate that real exchange rate variability has been affected both by real and monetary factors. In particular it was found that more unstable nominal exchange rate policies were reflected in higher real exchange rate instability in the short-run; more unstable domestic credit policies resulted in higher short-term real exchange rate variability; and more unstable external terms of trade also affected positively the degree of real exchange rate instability.

Suggested Citation

  • Sebastian Edwards, 1986. "Real Exchange Rate Variability: An Empirical Analysis of the Developing Countries Case," NBER Working Papers 1930, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1930
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    Cited by:

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    4. International Monetary Fund, 2003. "The Equilibrium Real Exchange Rate in a Commodity Exporting Country: The Case of Russia," IMF Working Papers 2003/093, International Monetary Fund.
    5. Ming He Goh & Yoonbai Kim, 2006. "Is The Chinese Renminbi Undervalued?," Contemporary Economic Policy, Western Economic Association International, vol. 24(1), pages 116-126, January.

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