Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?

Varadarajan Chari (), Patrick J. Kehoe () and Ellen R. McGrattan

No 7869, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The central puzzle in international business cycles is that real exchange rates are volatile and persistent. The most popular story for real exchange rate fluctuations is that they are generated by monetary shocks interacting with sticky goods prices. We quantify this story and find that it can account for some of the observed properties of real exchange rates. When prices are held fixed for at least one year, risk aversion is high and preferences are separable in leisure, the model generates real exchange rates that are as volatile as in the data. The model also generates real exchange rates that are persistent, but less so than in the data. If monetary shocks are correlated across countries, then the comovements in aggregates across countries are broadly consistent with those in the data. Making asset markets incomplete or introducing sticky wages does not measurably change the results.

Date: 2000-09
Note: EFG IFM
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nber.org/papers/w7869.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
Working Paper: Can sticky price models generate volatile and persistent real exchange rates? (1998)
Working Paper: Can sticky price models generate volatile and persistent real exchange rates? (2002)
Journal Article: Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates? (2002)
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: http://EconPapers.repec.org/RePEc:nbr:nberwo:7869

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w7869
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().