Exchange Rate Undershooting: Evidence and Theory

Müller, Gernot, Martin Wolf and Thomas Hettig
Authors registered in the RePEc Author Service: Gernot J. Müller

No 13597, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We reconsider the delayed overshooting puzzle through the lens of a New Keynesian model with information rigidities. In the model, market participants do not directly observe the natural rate of interest and learn from unanticipated shifts in monetary policy about the state of the economy. We estimate the model and find that it can account for the joint responses of spot and forward exchange rates, excess returns, and macroeconomic indicators to monetary policy shocks. Our results suggest that information rigidities are important for understanding exchange rate dynamics.

Keywords: exchange rate; Forward exchange rates; Excess return; Uip puzzle; Monetary policy; Information effect; Information rigidities (search for similar items in EconPapers)
JEL-codes: E43 F31 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://cepr.org/publications/DP13597 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:13597

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP13597

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().