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Real effective exchange rate volatility and growth: A framework to measure advantages of flexibility vs. costs of volatility

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  • معلومة اضافية
    • Affiliation:
      a Università Tor Vergata, Roma, Facoltà di Economia, Dipartimento di Economia e Istituzioni, Via Columbia 2, 00133 Roma, Italy
      b Rensselaer Polytechnic Institute, Lally School of Management, 110, 8th Street, Troy, NY 12180-3590, United States
      c Berkley Research Center, Stern School of Business, New York University, 44 West 4th Street, KMEC 7-95, New York, NY 10012, United States
    • Note:
      Preliminary versions of this paper were presented at the 2002 Annual Conference of the Central Bank of Venezuela held in Caracas, at the 2003 Annual Conference of the Financial Management Association in Dublin, at the 2003 Conference of the Australasian Financial Association in Sydney, at the 2004 Villa Mondragone Conference and at the XII Tor Vergata Financial Conference in Rome. The authors thank G.P. Dwyer Jr., O. Knudsen, J. Lothian, P.L. Scandizzo, G. Schnabl, P. Wachtel, H. Zavarce and two anonymous referees for their helpful comments and suggestions. We also thank A. de Longis, F. Meloni and A.V. Nalli for outstanding research assistance. The usual disclaimer applies.
    • Keywords:
      Exchange rate volatility
      Conditional convergence
      Fixed/flexible exchange rates
    • Abstract:
      By devising a real effective exchange rate (REER) index where bilateral exchange rates are weighted for relative trade shares, we find that the REER volatility (differently from the bilateral exchange rate volatility with the dollar) has significant impact on growth of per capita income after controlling for other variables traditionally considered in conditional convergence estimates. We also find that this (cost of volatility) effect can be reconciled with the concurring negative and significant effect on growth of the adoption of a fixed exchange rate regime (advantage of flexibility effect), where the latter may be also interpreted as the cost of choosing pegged regimes without harmonization of rules and macroeconomic policies with main trading partners. The adoption of an REER volatility measure, instead of a bilateral exchange rate with the dollar, has the advantage of making it possible a joint test for these two effects. This is because, while fixed exchange rate regimes are strongly negatively correlated, and almost collinear, with bilateral exchange rate volatility with the dollar, the correlation is much weaker when considering our REER volatility measure.
    • ISSN:
      0378-4266
    • Accession Number:
      10.1016/j.jbankfin.2005.05.012
    • Accession Number:
      S0378426605001123
    • Copyright:
      Copyright @ 2005 Elsevier B.V. All rights reserved.
  • Citations
    • ABNT:
      BAGELLA, M.; BECCHETTI, L.; HASAN, I. Real effective exchange rate volatility and growth: A framework to measure advantages of flexibility vs. costs of volatility. Journal of Banking and Finance, [s. l.], v. 30, n. 4, p. 1149–1169, 2006. DOI 10.1016/j.jbankfin.2005.05.012. Disponível em: http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edselp&AN=S0378426605001123&custid=s8280428. Acesso em: 4 abr. 2020.
    • AMA:
      Bagella M, Becchetti L, Hasan I. Real effective exchange rate volatility and growth: A framework to measure advantages of flexibility vs. costs of volatility. Journal of Banking and Finance. 2006;30(4):1149-1169. doi:10.1016/j.jbankfin.2005.05.012.
    • APA:
      Bagella, M., Becchetti, L., & Hasan, I. (2006). Real effective exchange rate volatility and growth: A framework to measure advantages of flexibility vs. costs of volatility. Journal of Banking and Finance, 30(4), 1149–1169. https://doi.org/10.1016/j.jbankfin.2005.05.012
    • Chicago/Turabian: Author-Date:
      Bagella, Michele, Leonardo Becchetti, and Iftekhar Hasan. 2006. “Real Effective Exchange Rate Volatility and Growth: A Framework to Measure Advantages of Flexibility vs. Costs of Volatility.” Journal of Banking and Finance 30 (4): 1149–69. doi:10.1016/j.jbankfin.2005.05.012.
    • Harvard:
      Bagella, M., Becchetti, L. and Hasan, I. (2006) ‘Real effective exchange rate volatility and growth: A framework to measure advantages of flexibility vs. costs of volatility’, Journal of Banking and Finance, 30(4), pp. 1149–1169. doi: 10.1016/j.jbankfin.2005.05.012.
    • Harvard: Australian:
      Bagella, M, Becchetti, L & Hasan, I 2006, ‘Real effective exchange rate volatility and growth: A framework to measure advantages of flexibility vs. costs of volatility’, Journal of Banking and Finance, vol. 30, no. 4, pp. 1149–1169, viewed 4 April 2020, .
    • MLA:
      Bagella, Michele, et al. “Real Effective Exchange Rate Volatility and Growth: A Framework to Measure Advantages of Flexibility vs. Costs of Volatility.” Journal of Banking and Finance, vol. 30, no. 4, Jan. 2006, pp. 1149–1169. EBSCOhost, doi:10.1016/j.jbankfin.2005.05.012.
    • Chicago/Turabian: Humanities:
      Bagella, Michele, Leonardo Becchetti, and Iftekhar Hasan. “Real Effective Exchange Rate Volatility and Growth: A Framework to Measure Advantages of Flexibility vs. Costs of Volatility.” Journal of Banking and Finance 30, no. 4 (January 1, 2006): 1149–69. doi:10.1016/j.jbankfin.2005.05.012.
    • Vancouver/ICMJE:
      Bagella M, Becchetti L, Hasan I. Real effective exchange rate volatility and growth: A framework to measure advantages of flexibility vs. costs of volatility. Journal of Banking and Finance [Internet]. 2006 Jan 1 [cited 2020 Apr 4];30(4):1149–69. Available from: http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edselp&AN=S0378426605001123&custid=s8280428