The Effect of the Nominal Exchange Rate Regime on Real Exchange Rate Variability

Imad A. Moosa and Razzaque H. Bhatti
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Imad A. Moosa: Department of Accounting and Finance, Monash University
Razzaque H. Bhatti: Gulf University for Science and Technology

Economia Internazionale / International Economics, 2006, vol. 59, issue 3, 355-381

Abstract: This paper examines the effect of the nominal exchange rate regime on real exchange variability, specifi cally testing the hypothesis that real exchange rates are more volatile under fl exible than under fi xed exchange rates. To avoid the problem of distinguishing between de facto and de jure exchange rate regimes, fi ve quantitative measures of nominal exchange rate fl exibility are used. The results show that the nominal exchange rate regime does matter, particularly for OECD countries, given the observed failure of purchasing power parity. However, the results also show that there are some missing variables that are bound to affect real exchange rate variability.

JEL-codes: F31 F33 F41 (search for similar items in EconPapers)
Date: 2006
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