Delayed Overshooting: The Case for Information Rigidities

Gernot J. Müller, Martin Wolf and Thomas Hettig

American Economic Journal: Macroeconomics, 2024, vol. 16, issue 3, 310-42

Abstract: We provide evidence that the delayed overshooting puzzle reflects a slow adjustment of exchange rate expectations to monetary policy shocks rather than a failure of uncovered interest parity. Consistent with this evidence, we put forward a New Keynesian model in which uncovered interest parity holds, but there are information rigidities: investors do not observe monetary policy shocks but learn rationally from unanticipated shifts in monetary policy about the state of the economy. We estimate the model and find it can account for the joint responses of the spot exchange rate, forward exchange rates, and excess currency returns to monetary policy shocks.

JEL-codes: D83 E12 E31 E43 E52 F31 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/mac.20210212 (application/pdf)
https://doi.org/10.3886/E193087V1 (text/html)
https://www.aeaweb.org/doi/10.1257/mac.20210212.appx (application/pdf)
https://www.aeaweb.org/doi/10.1257/mac.20210212.ds (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

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:aea:aejmac:v:16:y:2024:i:3:p:310-42

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/mac.20210212

Access Statistics for this article

American Economic Journal: Macroeconomics is currently edited by Simon Gilchrist

More articles in American Economic Journal: Macroeconomics from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().