Sources of Real Exchange Rate Volatility and International Financial Integration: A Dynamic GMM Panel Approach
Guglielmo Maria Caporale
Brunel University - Centre for Empirical Finance
Thouraya Hadj Amor
FSEGM, Monastir University-Tunisia
University of Orleans; Université d'Évry - Centre D'Etudes des Politiques Economiques et de L'Emploi (EPEE); Université Paris I Panthéon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA); Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
November 29, 2011
CESifo Working Paper Series No. 3645
The aim of this paper is to provide some new empirical evidence on the determinants of volatility of real exchange rates in emerging countries, focusing on the role of international financial integration in particular. A reduced-form model is estimated using the GMM method for dynamic panels over the period 1979-2004 for a sample of 39 developing countries grouped into three regions (Latin America, Asia and MENA). Our findings suggest that different types of shocks (external, real and monetary) can account for volatility of real exchange rates in emerging economies, with international financial integration being a major driving force. Therefore, financial liberalization and integration should be pursued only gradually in emerging countries.
Number of Pages in PDF File: 36
Keywords: emerging economies, real exchange rate, volatility, financial integration, GMM method, dynamic panel
JEL Classification: E310, F000, F310, C150working papers series
Date posted: November 30, 2011
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