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Mark J. Holmes and Sayeeda Bano
''On openness and real exchange rate volatility''
( 2008, Vol. 6 No.14 )
We address the puzzle concerning the inverse relationship between openness and real exchange rate volatility. We argue that the relationship can be explained by increased openness facilitating purchasing power parity. Using New Zealand data, we show that increased openness prolongs real exchange regimes characterised by fast mean-reversion and low volatility.
JEL: F4 - Macroeconomic Aspects of International Trade and Finance: General
F1 - Trade: General
Manuscript Received : Feb 27 2008 Manuscript Accepted : Apr 01 2008

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