 Rethinking the delayed overshooting puzzle: An examination through present value frameworkJaeho Yun Journal of International Money and Finance, 2025, vol. 153, issue C Abstract: This paper examines the dynamic responses of real exchange rates in several developed economies to US monetary policy shocks, with a particular focus on the delayed overshooting puzzle. Using a present value model, I decompose the real exchange rate into cash flow and discount rate components and analyze their reactions to US monetary shocks identified through high-frequency identification. The empirical findings indicate that short-term real exchange rate movements are shaped by a combination of multiple exchange rate theories, calling into question the robustness of the delayed overshooting phenomenon. In contrast, long-term dynamics are primarily driven by the discount rate component. Among the three economic models considered—the Dornbusch overshooting model, the consumption-based model, and the global risk-taking channel—the behavior of real exchange rates aligns most closely with the global risk-taking channel. Keywords: Delayed overshooting puzzle; Real exchange rate; Present value model; High-frequency identification; Global risk-taking channel (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:153:y:2025:i:c:s0261560625000361 DOI: 10.1016/j.jimonfin.2025.103301 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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