Delayed overshooting can still be a puzzle after the 1980s

Jihye Ahn and Soyoung Kim

Economics Letters, 2021, vol. 199, issue C

Abstract: This paper reinvestigates the effects of US monetary policy shocks on exchange rates by using the structural VAR model with sign restrictions imposed on impulse responses following Kim et al. (2017) who documented that a delayed overshooting puzzle was not observed in the post-Volcker era. The main results are as follows. First, a huge uncertainty in the result of the nominal exchange rate response, which is the main variable of interest in Dornbusch’s overshooting theory, can be observed although Kim et al. (2017) investigated mostly the real exchange rate response. Second, the delayed overshooting puzzle for both nominal and real exchange rates is found for the model that includes non-borrowed reserves divided by a lag of total reserves, instead of current total reserves used by Kim et al. (2017), to be consistent with monetary policy operating procedure.

Keywords: VAR; Monetary policy shocks; Exchange rate; Delayed overshooting; NBRX (search for similar items in EconPapers)
JEL-codes: E52 F31 F42 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176520304663
Full text for ScienceDirect subscribers only

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:eee:ecolet:v:199:y:2021:i:c:s0165176520304663

DOI: 10.1016/j.econlet.2020.109706

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().