Remoteness and Real Exchange Rate Volatility

Author/Editor:

International Monetary Fund

Publication Date:

January 1, 2005

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Series:

Working Paper No. 05/1

Subject:

English

Publication Date:

January 1, 2005

ISBN/ISSN:

9781451860207/1018-5941

Stock No:

WPIEA2005001

Format:

Paper

Pages:

21

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