Expectations and exchange rate dynamics: a state-dependent pricing approach

Anthony Landry ()

No 604, Working Papers from Federal Reserve Bank of Dallas

Abstract: We introduce elements of state-dependent pricing and strategic complementarity into an otherwise standard New Open Economy Macroeconomics (NOEM) model. Relative to previous NOEM works, there are new implications for the dynamics of real and nominal economic activity: complementarity in the timing of price adjustment alters an open economy's response to monetary disturbances. Using a two-country Producer-Currency-Pricing environment, our framework replicates key international features following a domestic monetary expansion: (i) a delayed surge in inflation across countries, (ii) a delayed overshooting of exchange rates, (iii)a J-curve dynamic in the domestic trade balance, and (iv) a high international output correlation relative to consumption correlation. Overall, the model is consistent with many empirical aspects of international economic fluctuations, while stressing pricing behavior and exchange rate effects highlighted in traditional Keynesian works.>

Pages: 46 pages
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-mac
Note: Published as: Landry, Anthony (2009), "Expectations and Exchange Rate Dynamics: A State-Dependent Pricing Approach," Journal of International Economics 78 (1): 60-71.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.dallasfed.org/~/media/documents/research/papers/2006/wp0604.pdf Full text (application/pdf)

Related works:
Journal Article: Expectations and exchange rate dynamics: A state-dependent pricing approach (2009)
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:fip:feddwp:0604

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Dallas Contact information at EDIRC.
Bibliographic data for series maintained by Amy Chapman ().