Remoteness and Real Exchange Rate Volatility

Claudio Bravo-Ortega and Julian di Giovanni

IMF Staff Papers, 2006, vol. 53, 6

Abstract: This paper examines the impact of trade costs on real exchange rate volatility. The relationship 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 nontradables sector, in turn leading to higher real exchange rate volatility. We then construct a remoteness index to proxy for trade costs, and provide empirical evidence supporting the channel. Copyright 2006, International Monetary Fund

JEL-codes: F30 F40 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (22)

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