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What Makes Currencies Volatile? An Empirical Investigation

Michael Bleaney and Manuela Francisco ()

No 22/2009, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: Real effective exchange rate volatility is examined for 90 countries using monthly data from January 1990 to June 2006. Volatility decreases with openness to international trade and per capita GDP, and increases with inflation, particularly under a horizontal peg or band, and with terms - of - trade volatility. The choice of exchange rate regime matters. After controlling for these effects, and independent float adds at least 45% to the standard deviation of the real effective exchange rate, relative to a conventional peg, but must other regimes make little difference. The results are robust to alternative volatility measures and to sample selection bias.

Keywords: Exchange rate regimes; Inflation; Volatility (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mon and nep-opm
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Journal Article: What Makes Currencies Volatile? An Empirical Investigation (2010) Downloads
Working Paper: What Makes Currencies Volatile? An Empirical Investigation (2008) Downloads
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