Nominal exchange rate volatility, relative price volatility, and the real exchange rate

Ganguly, Srideep; Breuer, Janice Boucher

doi:10.1016/j.jimonfin.2009.11.002

Cited by 31 publications

(41 citation statements)

References 21 publications

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“…These findings suggest that the effect of exchange rate volatility on stock returns becomes stronger for some firms and weaker for others during the unremunerated reserve requirement period. Taken together, the results in this paper improve our understanding of the behavior of exchange rate volatility during the period of the unremunerated reserve requirement, complementing the literature on exchange rate volatility (see e.g., Beine et al, 2009;Edwards and Rigobon, 2009;Ganguly and Breuer, 2010;Sideris, 2008). The paper also complements and expands the literature on the influence of capital account restrictions on firms (see e.g., Prati et al, 2009;Vithessonthi and Tongurai, 2010;Wei and Zhang, 2007).…”

Section: Introductionsupporting

confidence: 67%

“…We use nominal exchange rates due to the unavailability of real exchange rate data on a daily basis. As documented by Ganguly and Breuer (2010), the unconditional real and nominal exchange rate volatilities in the developed countries are almost the same in the short run. Given a pattern of relatively low and stable inflation rates in Thailand over the study period, we assume that the unconditional real and nominal exchange rate volatilities in Thailand are not substantially different in the short run.…”

Section: The Effect Of the Unremunerated Reserve Requirement On Equitmentioning

confidence: 84%

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Unremunerated reserve requirements, exchange rate volatility, and firm value

Vithessonthi

Tongurai

2013

Journal of International Financial Markets, Institutions and Mo

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Section: Introductionsupporting

confidence: 67%

Section: The Effect Of the Unremunerated Reserve Requirement On Equitmentioning

confidence: 84%

Unremunerated reserve requirements, exchange rate volatility, and firm value

Vithessonthi

Tongurai

2013

Journal of International Financial Markets, Institutions and Mo

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“…As far as the relative price volatility is concerned, nominal shock variables appear to have a favorable impact on developing and industrialized countries alike. Decomposing the residual variance of the real exchange rate, Ganguly and Breuer () show that nominal exchange rate volatility accounts for the real exchange rate volatility of developing and industrialized countries. The differences in volatilities among both country groups, however, seem to be driven by relative price volatilities.…”

Section: Related Literaturementioning

confidence: 99%

“…Existing research made significant efforts to find variables that may influence the overall volatility of exchange rates (e.g. Kanas, ; Devereux and Lane, ; Ganguly and Breuer, ; Giannellis and Papadopoulos, ; Berganza and Broto, ). Very little is known, however, about the impact of these variables on the high‐frequency components of exchange rate volatility, which are most economically destabilizing.…”

Section: Introductionmentioning

confidence: 99%

A Panel‐regressions Investigation of Exchange Rate Volatility

Grossmann

Orlov

2014

Int. J Fin Econ

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This paper offers an empirical explanation behind the dynamics of the overall volatility of exchange rates and its high-frequency, most economically destabilizing components. Spectral methodology is employed to isolate the portion of volatility attributable to high-frequency components, and panel regressions are used to relate the volatility measures to various macroeconomic and policy variables. Given the estimated panel regressions, the paper suggests policies that may help reduce exchange rate volatility in general and along high-frequency components in particular, thereby contributing to financial stability. The paper shows that while the macroeconomic and policy variables affecting the high-frequency components of volatility and overall volatility are generally similar, there are some important differences. The paper also highlights the divergent impacts of policy variables in developed vis-à-vis developing economies. The results are robust with respect to using alternative cut-off frequencies and estimation methods. The presented analysis may help to gain an understanding of the determinants of the most destabilizing components of exchange rate volatility and provide guidance into managing currency crises.

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“…4 But if one employs the standard Heckscher-Ohlin production structure, in 1 In a separate, but related, strand of literature, researchers found that price convergence in cities is faster for developing countries than that in developed countries [Cecchetti et al, 2002; Devereux, 2003, Sonora, 2005;. 2 Ganguly and Boucher (2010) show how the inclusion of various nominal factors can reduce the spread in volatility between developed and less developed economies. 3 Novy (2010) obtains a similar result, showing that trade costs, which reduce trade flows, thereby reducing openness, have the effect of increasing exchange rate volatility.…”

mentioning

confidence: 99%

Real exchange rate dynamics: The role of elastic labor supply

Morshed¹,

Turnovsky²

2011

Journal of International Money and Finance

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Empirical evidence suggests that the flexibility of labor supply is closely related to the dynamic adjustment of the real exchange rate. This paper investigates this relationship in a two-sector dependent economy model. While, the long-run equilibrium real exchange rate is independent of the elasticity of labor supply, our analysis confirms that the nature of the labor supply can be a crucially important determinant of its short-run dynamics. The extent to which this is so depends to some degree on the source of the underlying structural change that is driving the dynamics of the real exchange rate. Numerical simulations confirm that this mechanism may help explain the larger shortrun volatility and more rapid convergence typically associated with developing countries having less flexible labor markets. August 2010 JEL Classification code: F 31, F41Keywords: Elastic labor supply; Real exchange rate; Persistence, Volatility *Turnovsky's research was supported in part by the Castor endowment at the University of Washington. 1 IntroductionThe real exchange rate (RER) puzzle has spawned an extensive literature, stimulating researchers to propose different explanations [Rogoff, 1996;Betts and Devereux, 1996;Hau, 2000;Obstfeld and Rogoff, 2001;Bergin and Feenstra, 2001;Chari, Kehoe, and McGrattan, 2002;Devereux and Engel, 2002;Morshed and Turnovsky, 2004;Chen and Hsu, 2009;Carvalho and Nechio, 2010]. Two key aspects of the puzzle are: (i) the long-term persistence of the real exchange rate following a structural change, and (ii) its short-term volatility, both of which exhibit systematic patterns across economies. With respect to the persistence of the real exchange rate, the rate of convergence to its long-run equilibrium value is significantly slower for developed countries than it is for developing countries [Cheung and Lai, 2000]. These authors examined a number of structural characteristics such as inflation, productivity growth, trade openness, and the size of government spending to account for these cross-country differences in the rate of convergence. They observe that only inflation and government spending yield a weak relationship with the observed pattern of persistence. Consequently, their findings underscore the need to identify the determinants of the persistence of the PPP deviation in order to explain these differences. 1 With regard to volatility, Hausmann, Panizza, and Rigobon (2006) show that developing countries have substantially more volatile real exchange rates than do developed countries, a difference that cannot be explained by differences in the magnitudes of the underlying shocks. 2 In addition, Hau (2002) finds that increased openness is associated with less volatility in the real exchange rate. 3A natural framework for addressing the dynamics of the real exchange rate is the dynamic "dependent-economy model", which determines the real exchange rate within a two-sector production framework. 4 But if one employs the standard Heckscher-Ohlin production structure, in 1 In a separate, ...

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Nominal exchange rate volatility, relative price volatility, and the real exchange rate

Cited by 31 publications

References 21 publications

Unremunerated reserve requirements, exchange rate volatility, and firm value

Unremunerated reserve requirements, exchange rate volatility, and firm value

A Panel‐regressions Investigation of Exchange Rate Volatility

Real exchange rate dynamics: The role of elastic labor supply

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