During currency crises, some currencies depreciate more than the post-crisis exchange rate level, which can be described as exchange rate overshooting. Previous studies have claimed that a tight monetary policy, represented by an increase in the interest rate, stabilizes an exchange rate by...

We use a perturbation method to solve the incomplete markets model with aggregate uncertainty described in den Haan et al. [Computational suite of models with heterogeneous agents: incomplete markets and model uncertainty. Journal of Economic Dynamics & Control, this issue]. To apply that...