TY  - JOUR
AU  - Hausmann,Ricardo
AU  - Panizza,Ugo
AU  - Rigobon,Roberto
TI  - The Long-Run Volatility Puzzle of the Real Exchange Rate
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10751
PY  - 2004
Y2  - September 2004
UR  - http://www.nber.org/papers/w10751
L1  - http://www.nber.org/papers/w10751.pdf
N1  - Author contact info:
Ricardo Hausman
Harvard Kennedy School
79 JFK St.
Cambridge
MA
02138
Tel: 617-496-3740
E-Mail: ricardo_hausmann@harvard.edu

Ugo Panizza
Inter-American Development Bank
Research Dept.
1300 New York Ave., NW
Washington, DC 20577
E-Mail: ugop@iadb.org

Roberto Rigobon
MIT Sloan School of Management
100 Main Street, E62-516
Cambridge, MA 02142
Tel: 617/258-8374
Fax: 617/258-6855
E-Mail: rigobon@mit.edu
AB  - 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.
ER  -