The Dynamic Behavior of the Real Exchange Rate in Sticky Price Models

Jon Steinsson

American Economic Review, 2008, vol. 98, issue 1, 519-33

Abstract: Existing empirical evidence suggests that real exchange rates exhibit hump-shaped dynamics. I show that this is a robust fact across nine large, developed economies. This fact can help explain why sticky price business cycle models have been unable to match the persistence of the real exchange rate. I show that, in response to a number of different real shocks, a two-country sticky price business cycle model yields hump-shaped dynamics for the real exchange rate. The hump-shaped dynamics generated by the model are a powerful source of endogenous persistence that allows the model to match the long half-life of the real exchange rate. (JEL F31)

JEL-codes: E31 E32 F31 (search for similar items in EconPapers)
Date: 2008
Note: DOI: 10.1257/aer.98.1.519
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Citations: View citations in EconPapers (117)

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Related works:
Working Paper: The Dynamic Behavior of the Real Exchange Rate in Sticky Price Models (2008)
Working Paper: The Dynamic Behavior of the Real Exchange Rate in Sticky Price Models (2005)
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