Does Higher Openness Cause More Real Exchange Rate Volatility?

Calderón, César; Kubota, Megumi

dc.creator	Calderón, César
dc.creator	Kubota, Megumi
dc.date	2012-03-19T19:09:49Z
dc.date	2012-03-19T19:09:49Z
dc.date	2009-04-01
dc.date.accessioned	2023-02-17T21:08:59Z
dc.date.available	2023-02-17T21:08:59Z
dc.identifier	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090408093735
dc.identifier	http://hdl.handle.net/10986/4090
dc.identifier.uri	http://localhost:8080/xmlui/handle/CUHPOERS/245127
dc.description	The "New Open Economy Macroeconomics" argues that: (a) non-monetary factors have gained importance in explaining exchange rate volatility, and (b) trade and financial openness may have a potential role of mitigating and/or amplifying real and nominal shocks to real exchange rates. The goal of the present paper is to examine the ability of trade and financial openness to exacerbate or mitigate real exchange rate volatility. The authors collected information on the real effective exchange rate, its fundamentals, and (outcome and policy measures of) trade and financial openness for a sample of industrial and developing countries for the period 1975-2005. Using instrumental variables techniques, the analysis finds that: (a) High real exchange rate volatility is the result of highly volatile productivity shocks, and sharp oscillations in monetary and fiscal policy shocks. (b) Countries more integrated with international markets of goods and services tend to display more stable real exchange rate fluctuations. (c) Financial openness seems to amplify the fluctuations in real exchange rates. (d) The composition of trade and capital flows plays a role in explaining the smoothing properties of trade and financial openness. Although the former is mainly driven by manufacturing trade, the latter depends on the share of debt (and equity) in total foreign liabilities. (e) Financial openness would attenuate (magnify) real exchange rate volatility, the greater the share of equity (debt) in foreign liabilities. (f) The composition of flows also matters for explaining the smoothing properties of trade and financial openness in periods of currency crisis.
dc.language	English
dc.relation	Policy Research working paper ; no. WPS 4896
dc.rights	CC BY 3.0 IGO
dc.rights	http://creativecommons.org/licenses/by/3.0/igo/
dc.rights	World Bank
dc.subject	ACCOUNTING
dc.subject	ADVANCED ECONOMIES
dc.subject	BANK POLICY
dc.subject	BILATERAL EXCHANGE RATE
dc.subject	BILATERAL TRADE
dc.subject	BLACK MARKET
dc.subject	BOND
dc.subject	BONDS
dc.subject	BUDGET CONSTRAINT
dc.subject	BUDGET CONSTRAINTS
dc.subject	BUSINESS CYCLE
dc.subject	BUSINESS CYCLES
dc.subject	CAPITAL ACCOUNT
dc.subject	CAPITAL ACCOUNT RESTRICTIONS
dc.subject	CAPITAL ACCOUNT TRANSACTIONS
dc.subject	CAPITAL FLOW
dc.subject	CAPITAL FLOWS
dc.subject	CAPITAL INFLOWS
dc.subject	CAPITAL MARKETS
dc.subject	CAPITAL MOBILITY
dc.subject	CAPITAL STRUCTURE
dc.subject	CD
dc.subject	CENTRAL BANK
dc.subject	CIVIL CODE
dc.subject	COMMODITIES
dc.subject	CONSUMER PRICE INDEX
dc.subject	CONSUMPTION SMOOTHING
dc.subject	COUNTRY DUMMIES
dc.subject	CREDITOR
dc.subject	CROSS-BORDER TRANSACTIONS
dc.subject	CURRENCY
dc.subject	CURRENCY CRISES
dc.subject	CURRENCY CRISIS
dc.subject	CURRENCY UNION
dc.subject	CURRENT ACCOUNT TRANSACTIONS
dc.subject	DEBT
dc.subject	DEBT ACCUMULATION
dc.subject	DEBT FLOWS
dc.subject	DEBT LEVELS
dc.subject	DEBT-EQUITY
dc.subject	DEBTOR
dc.subject	DEBTOR COUNTRY
dc.subject	DEGREE OF RISK
dc.subject	DEPENDENT VARIABLE
dc.subject	DEVELOPING COUNTRIES
dc.subject	DEVELOPING COUNTRY
dc.subject	DEVELOPING ECONOMIES
dc.subject	DOMESTIC FINANCIAL MARKETS
dc.subject	DOMESTIC INTEREST RATES
dc.subject	DUMMY VARIABLE
dc.subject	DUMMY VARIABLES
dc.subject	ECONOMIC PERFORMANCE
dc.subject	ECONOMIC REFORM
dc.subject	ECONOMIC STRUCTURE
dc.subject	EMERGING MARKET
dc.subject	EMERGING MARKET ECONOMIES
dc.subject	EMERGING MARKETS
dc.subject	EQUITY FLOWS
dc.subject	EXCHANGE ARRANGEMENTS
dc.subject	EXCHANGE RATE
dc.subject	EXCHANGE RATE DYNAMICS
dc.subject	EXCHANGE RATE FLUCTUATIONS
dc.subject	EXCHANGE RATE INSTABILITY
dc.subject	EXCHANGE RATE REGIME
dc.subject	EXCHANGE RATE REGIMES
dc.subject	EXCHANGE RATE SYSTEMS
dc.subject	EXCHANGE RATE VOLATILITY
dc.subject	EXCHANGE RATE FLUCTUATIONS
dc.subject	EXCHANGE RATES
dc.subject	EXPOSURE
dc.subject	FINANCIAL DERIVATIVES
dc.subject	FINANCIAL DEVELOPMENT
dc.subject	FINANCIAL FLOW
dc.subject	FINANCIAL FLOWS
dc.subject	FINANCIAL INTEGRATION
dc.subject	FINANCIAL MARKET
dc.subject	FINANCIAL MARKET INTEGRATION
dc.subject	FINANCIAL MARKETS
dc.subject	FINANCIAL OPENNESS
dc.subject	FINANCIAL SHOCKS
dc.subject	FINANCIAL TRANSACTIONS
dc.subject	FISCAL CONSOLIDATION
dc.subject	FISCAL POLICIES
dc.subject	FISCAL POLICY
dc.subject	FISCAL SHOCKS
dc.subject	FIXED EXCHANGE RATE
dc.subject	FIXED EXCHANGE RATES
dc.subject	FIXED RATES
dc.subject	FLEXIBLE EXCHANGE RATE
dc.subject	FLEXIBLE EXCHANGE RATE REGIME
dc.subject	FLEXIBLE EXCHANGE RATE REGIMES
dc.subject	FLEXIBLE EXCHANGE RATES
dc.subject	FLOATING EXCHANGE RATE
dc.subject	FLOW OF CAPITAL
dc.subject	FOREIGN ASSET
dc.subject	FOREIGN ASSET POSITION
dc.subject	FOREIGN ASSETS
dc.subject	FOREIGN DEBT
dc.subject	FOREIGN DIRECT INVESTMENT
dc.subject	FOREIGN EXCHANGE
dc.subject	FOREIGN EXCHANGE RATE
dc.subject	FOREIGN LIABILITIES
dc.subject	FOREIGN TRADE
dc.subject	FREE TRADE
dc.subject	GENERAL EQUILIBRIUM
dc.subject	GENERAL EQUILIBRIUM MODEL
dc.subject	GLOBALIZATION
dc.subject	GOLD
dc.subject	GOLD STANDARD
dc.subject	GOVERNMENT EXPENDITURE
dc.subject	GOVERNMENT SPENDING
dc.subject	GRAVITY MODEL
dc.subject	HOLDING
dc.subject	HOLDINGS
dc.subject	HOME COUNTRY
dc.subject	IMPACT OF SHOCKS
dc.subject	IMPERFECT CAPITAL MOBILITY
dc.subject	IMPORT
dc.subject	INCOME
dc.subject	INCOME GROUPS
dc.subject	INCOME LEVEL
dc.subject	INCOME LEVELS
dc.subject	INDUSTRIAL COUNTRIES
dc.subject	INFLATION
dc.subject	INFLATION RATE
dc.subject	INFLATION RATES
dc.subject	INSTRUMENT
dc.subject	INSTRUMENTAL VARIABLES
dc.subject	INSURANCE
dc.subject	INTEREST RATE
dc.subject	INTEREST RATE DIFFERENTIALS
dc.subject	INTEREST RATES
dc.subject	INTERNATIONAL BANK
dc.subject	INTERNATIONAL CAPITAL
dc.subject	INTERNATIONAL CAPITAL FLOWS
dc.subject	INTERNATIONAL CAPITAL MARKETS
dc.subject	INTERNATIONAL ECONOMICS
dc.subject	INTERNATIONAL FINANCE
dc.subject	INTERNATIONAL FINANCIAL INTEGRATION
dc.subject	INTERNATIONAL FINANCIAL MARKETS
dc.subject	INTERNATIONAL FINANCIAL STATISTICS
dc.subject	INTERNATIONAL MARKETS
dc.subject	INTERNATIONAL TRADE
dc.subject	LEVY
dc.subject	LIABILITY
dc.subject	LIBERALIZATION
dc.subject	LOAN
dc.subject	LOCAL CURRENCY
dc.subject	LOW-INCOME COUNTRIES
dc.subject	MACROECONOMIC UNCERTAINTY
dc.subject	MACROECONOMIC VOLATILITY
dc.subject	MAJOR CURRENCIES
dc.subject	MARKET INTEGRATION
dc.subject	MIDDLE-INCOME COUNTRIES
dc.subject	MONETARY AGGREGATES
dc.subject	MONETARY AUTHORITIES
dc.subject	MONETARY FUND
dc.subject	MONETARY INSTABILITY
dc.subject	MONETARY MODELS
dc.subject	MONETARY POLICIES
dc.subject	MONETARY POLICY
dc.subject	MONETARY STABILITY
dc.subject	MONEY DEMAND
dc.subject	MONEY SUPPLY
dc.subject	MONOPOLY
dc.subject	NATURAL RESOURCES
dc.subject	OIL PRICES
dc.subject	OPEN ECONOMIES
dc.subject	OPEN ECONOMY
dc.subject	OUTPUT
dc.subject	POLITICAL ECONOMY
dc.subject	POLITICAL RISK
dc.subject	PORTFOLIO
dc.subject	PRIVATE INVESTMENT
dc.subject	PRODUCTION STRUCTURE
dc.subject	PUBLIC POLICY
dc.subject	RATE OF GROWTH
dc.subject	REAL EFFECTIVE EXCHANGE RATE
dc.subject	REAL EFFECTIVE EXCHANGE RATES
dc.subject	REAL ESTATE
dc.subject	REAL EXCHANGE RATE
dc.subject	REAL EXCHANGE RATES
dc.subject	REAL INTEREST
dc.subject	REAL INTEREST RATES
dc.subject	REAL SHOCKS
dc.subject	REGRESSION ANALYSIS
dc.subject	RESERVES
dc.subject	RETURN
dc.subject	RETURNS
dc.subject	RISK SHARING
dc.subject	SHARE OF EQUITY
dc.subject	SMALL COUNTRY
dc.subject	SPEED OF ADJUSTMENT
dc.subject	STEADY STATE
dc.subject	STOCKS
dc.subject	SUPPLY SHOCKS
dc.subject	SUPPLY SIDE
dc.subject	TRADE LIBERALIZATION
dc.subject	TRADE OPENNESS
dc.subject	TRADE REGIME
dc.subject	TRADE REGIMES
dc.subject	TRADE SHOCKS
dc.subject	TRADING
dc.subject	VOLATILITY
dc.subject	WORLD DEVELOPMENT INDICATORS
dc.subject	WORLD MARKETS
dc.title	Does Higher Openness Cause More Real Exchange Rate Volatility?
dc.type	Publications & Research :: Policy Research Working Paper
dc.coverage	The World Region
dc.coverage	The World Region