Remoteness and Real Exchange Rate Volatility
January 1, 2005
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Summary
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.
Subject: Exchange rate adjustments, Exports, Foreign exchange, Income, International trade, National accounts, Real exchange rates, Tariffs, Taxes
Keywords: Africa, comparative advantage, Exchange rate adjustments, exchange rate volatility, Exports, Income, low income, nontradable goods, productivity shock, Real exchange rate volatility, Real exchange rates, Tariffs, trade cost, trade costs, transport cost, volatility decrease, WP
Pages:
21
Volume:
2005
DOI:
Issue:
001
Series:
Working Paper No. 2005/001
Stock No:
WPIEA2005001
ISBN:
9781451860207
ISSN:
1018-5941
