Does Higher Openness Cause More Real Exchange Rate Volatility?

Calderó ; n, Cé ; sar ; Kubota, Megumi

关键词: ACCOUNTING;    ADVANCED ECONOMIES;    BANK POLICY;    BILATERAL EXCHANGE RATE;    BILATERAL TRADE;   

DOI  :  10.1596/1813-9450-4896
RP-ID  :  WPS4896

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

The "New Open EconomyMacroeconomics" argues that: (a) non-monetary factorshave gained importance in explaining exchange ratevolatility, and (b) trade and financial openness may have apotential role of mitigating and/or amplifying real andnominal shocks to real exchange rates. The goal of thepresent paper is to examine the ability of trade andfinancial openness to exacerbate or mitigate real exchangerate volatility. The authors collected information on thereal effective exchange rate, its fundamentals, and (outcomeand policy measures of) trade and financial openness for asample of industrial and developing countries for the period1975-2005. Using instrumental variables techniques, theanalysis finds that: (a) High real exchange rate volatilityis the result of highly volatile productivity shocks, andsharp oscillations in monetary and fiscal policy shocks. (b)Countries more integrated with international markets ofgoods and services tend to display more stable real exchangerate fluctuations. (c) Financial openness seems to amplifythe fluctuations in real exchange rates. (d) The compositionof trade and capital flows plays a role in explaining thesmoothing 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) intotal foreign liabilities. (e) Financial openness wouldattenuate (magnify) real exchange rate volatility, thegreater the share of equity (debt) in foreign liabilities.(f) The composition of flows also matters for explaining thesmoothing properties of trade and financial openness inperiods of currency crisis.