Remoteness and Real Exchange Rate Volatility

International Monetary Fund

No 2005/001, IMF Working Papers from 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.

Keywords: WP; comparative advantage; Real exchange rate volatility; trade costs; exchange rate volatility; trade cost; volatility decrease; transport cost; low income; nontradable goods; productivity shock; Real exchange rates; Income; Exchange rate adjustments; Exports; Tariffs; Africa (search for similar items in EconPapers)
Pages: 21
Date: 2005-01-01
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Citations: View citations in EconPapers (1)

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