01707cas a2200241 a 4500 AALejournalIMF008720 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451860245 1018-5941 BD-DhAAL BD-DhAAL International Monetary Fund. Trade Costs and Real Exchange Rate Volatility : The Role of Ricardian Comparative Advantage. Washington, D.C. : International Monetary Fund, 2005. 1 online resource (43 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper examines the impact of trade costs on real exchange rate volatility. We incorporate a multi-country Ricardian model of trade, based on the work of Eaton and Kortum (2002), into a macroeconomic model to show how bilateral real exchange rate volatility depends on relative technological differences and trade costs. These differences highlight a new channel, in which the similarity of a pair of countries' set of suppliers of traded goods affects bilateral exchange rate volatility. We then test the importance of this channel using a large panel of cross-country data over 1970-97, and find strong evidence supporting the channel. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2005/005 Full text available on IMF http://elibrary.imf.org/view/journals/001/2005/005/001.2005.issue-005-en.xml IMF e-Library