On openness and real exchange rate volatility

Mark J. Holmes () and Sayeeda Bano ()
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Sayeeda Bano: University of Waikato

Economics Bulletin, 2008, vol. 6, issue 14, pages 1-12

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.

Keywords: Openness; real exchange rate; volatility; unit root; regime-switching. (search for similar items in EconPapers)
JEL-codes: F4 F1 (search for similar items in EconPapers)
Date: 2008 Written 2008-04-01
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