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Fundamentals And Exchange Rate Volatility

  • Michael Bleaney
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    Fundamentals may determine the range of real exchange rate fluctuation, through signals of misalignment, even if they are not a major influence on the level within that range. This can explain the puzzle that more open economies experience lower real exchange rate volatility. Adjustment of domestic prices to nominal exchange rate movements can account for only a small proportion of this effect. Sustainability analysis focuses on the ratio of the current account to GDP (rather than to total trade flows) as a misalignment signal, which implies narrower bounds for real exchange rates in more open economies.

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    File URL: http://www.nottingham.ac.uk/economics/documents/discussion-papers/06-03.pdf
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    Paper provided by University of Nottingham, School of Economics in its series Discussion Papers with number 06/03.

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    Handle: RePEc:not:notecp:06/03
    Contact details of provider: Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
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    Web page: http://www.nottingham.ac.uk/economics/

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    1. C. Fred Bergsten & John Williamson (ed.), 2004. "Dollar Adjustment: How Far? Against What?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number sr17, May.
    2. McCracken, Michael W & Sapp, Stephen G, 2005. "Evaluating the Predictability of Exchange Rates Using Long-Horizon Regressions: Mind Your p's and q's!," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(3), pages 473-94, June.
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    8. Olivier Jeanne & Andrew K. Rose, 2002. "Noise Trading And Exchange Rate Regimes," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 537-569, May.
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    10. Frankel, Jeffrey A & Froot, Kenneth A, 1986. "Understanding the U.S. Dollar in the Eighties: The Expectations of Chartists and Fundamentalists," The Economic Record, The Economic Society of Australia, vol. 0(0), pages 24-38, Supplemen.
    11. Bleaney, Michael & Mizen, Paul, 1996. "Nonlinearities in Exchange-Rate Dynamics: Evidence from Five Currencies, 1973-94," The Economic Record, The Economic Society of Australia, vol. 72(216), pages 36-45, March.
    12. Sollis, Robert & Leybourne, Stephen & Newbold, Paul, 2002. "Tests for Symmetric and Asymmetric Nonlinear Mean Reversion in Real Exchange Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(3), pages 686-700, August.
    13. William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3993, May.
    14. Devereux, M.B. & Lane, P.R., 2002. "Understanding Bilateral Exchange Rate Volatility," CEG Working Papers 20025, Trinity College Dublin, Department of Economics.
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