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On openness and real exchange rate volatility

Author

Listed:
  • Mark J. Holmes

    (University of Waikato)

  • Sayeeda Bano

    (University of Waikato)

Abstract

We address the puzzle concerning the inverse relationship between openness and real exchange rate volatility. We argue that the relationship can be explained by increased openness facilitating purchasing power parity. Using New Zealand data, we show that increased openness prolongs real exchange regimes characterised by fast mean-reversion and low volatility.

Suggested Citation

  • Mark J. Holmes & Sayeeda Bano, 2008. "On openness and real exchange rate volatility," Economics Bulletin, AccessEcon, vol. 6(14), pages 1-12.
    • Handle: RePEc:ebl:ecbull:eb-08f40021
    as

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    File URL: http://www.accessecon.com/pubs/EB/2008/Volume6/EB-08F40021A.pdf
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    References listed on IDEAS

    as
    1. Devereux, Michael B. & Lane, Philip R., 2003. "Understanding bilateral exchange rate volatility," Journal of International Economics, Elsevier, vol. 60(1), pages 109-132, May.
    2. 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.
    3. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    4. 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.
    5. Alba, Joseph D. & Papell, David H., 2007. "Purchasing power parity and country characteristics: Evidence from panel data tests," Journal of Development Economics, Elsevier, vol. 83(1), pages 240-251, May.
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    Cited by:

    1. Sayeeda Bano, 2010. "ASEAN-New Zealand Trade Relations and Trade Potential," Working Papers in Economics 10/01, University of Waikato.

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    More about this item

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F1 - International Economics - - Trade

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