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Real exchange rate variability in developing countries : an empirical analysis of the role of real and monetary factors (English)

The purpose of this paper is to investigate the potential role of monetary and real factors in explaining real exchange rate variability in developing countries. For this purpose two indexes of real effective exchange rate variability -- that measure short-term and long-term variability -- were constructed for 30 countries. The results obtained, using a generalized least squares procedures, indicate that real effective exchange rate variability has been affected both by real and monetary factors. In particular it was found that more unstable nominal exchange rate policies were reflected in higher real exchange rate instability; more unstable domestic credit policies resulted in higher short-term real exchange rate variability; and more unstable external terms of trade also affected positively the degree of real exchange rate instability.

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Citation

Edwards,Sebastian

Real exchange rate variability in developing countries : an empirical analysis of the role of real and monetary factors (English). Country Policy Department discussion paper,no. CPD 1985-45 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/910861491999685671/Real-exchange-rate-variability-in-developing-countries-an-empirical-analysis-of-the-role-of-real-and-monetary-factors