The Fragility of Overshooting

John Pippenger

University of California at Santa Barbara, Economics Working Paper Series from Department of Economics, UC Santa Barbara

Abstract: Using VAR, a large literature claims to find evidence of some form of Dornbuschovershooting. But the evidence is fragile in the sense of Leamer. The literature uses the wrong test for overshooting, unusually narrow confidence intervals and questionable shocks. In addition, it is difficult to reconcile overshooting with the fact that daily and weekly exchangerates are approximately martingales.

Keywords: Business; Social and Behavioral Sciences; overshooting; fragility; exchange rate; martingale; impulse response; step response (search for similar items in EconPapers)
Date: 2012-05-30
New Economics Papers: this item is included in nep-mon
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