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Remoteness and Real Exchange Rate Volatility

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  • International Monetary Fund

Abstract

This paper examines the impact of trade costs on real exchange rate volatility. The channel is examined by constructing a two-country Ricardian model of trade, based on the work of Dornbusch, Fischer, and Samuelson (1977), which shows that higher trade costs result in a larger nontradable sector. This, in turn, leads to higher real exchange rate volatility. We provide empirical evidence supporting the channel.

Suggested Citation

  • International Monetary Fund, 2005. "Remoteness and Real Exchange Rate Volatility," IMF Working Papers 2005/001, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2005/001
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=17854
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    Cited by:

    1. Vatcharin Sirimaneetham, 2006. "Explaining policy volatility in developing countries," Bristol Economics Discussion Papers 06/583, School of Economics, University of Bristol, UK.

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