The long-run volatility puzzle of the real exchange rate
By: Ricardo Hausmann, Ugo Panizza, Roberto Rigobon.
Contributors: Panizza, Ugo.; Rigobón, Roberto.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10751; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10751.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Monetary policy -- Developing countries.; Foreign exchange rates.
Description: "This paper documents large cross-country differences in the long run volatility of the real exchange rate.  In particular, it shows that the real exchange rate of developing countries is approximately three times more volatile than the real exchange rate in industrial countries.  The paper tests whether this difference in volatility can be explained by the fact that developing countries face larger shocks (both real and nominal) and recurrent currency crises or by different elasticities to these shocks.  It finds that the magnitude of the shocks and the differences in elasticities can only explain a small part of the difference in RER volatility between developing and industrial countries.  Results from ARCH estimations confirm that there is a substantial difference in long term volatilities between these two sets of countries and indicate that there is also a much higher persistence of deviations of the variance of the RER from its long run value when the economy suffers shocks of various kinds"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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