Exchange Rate Dynamics under Financial Market Frictions

This paper extends Dornbusch's overshooting model by proposing a generalized interest parity condition (GIP), which captures a sluggish adjustment on the asset market. The exchange rate model under the GIP is able to reproduce the delayed overshooting and the hump-shaped response to monetary shocks of both nominal and real exchange rates. Fur- thermore, we present empirical results for OECD member countries which fit the theoretical predictions.

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Year of publication:	2015
Authors:	Terra, Cristina ; Ryou, Hyunjoo
Institutions:	Théorie Économique, Modélisation, Application (THEMA), Université de Cergy-Pontoise
Subject:	Exchange rates \| Interest rate parity \| Overshooting \| Purchasing power parity puzzle \| Monetary policy

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Extent:	application/pdf
Series:	THEMA Working Papers.
Type of publication:	Book / Working Paper
Notes:	Number 2015-03
Classification:	E52 - Monetary Policy (Targets, Instruments, and Effects) ; F31 - Foreign Exchange ; F41 - Open Economy Macroeconomics ; F47 - Forecasting and Simulation
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011163297