Exchange rate dynamics in economies with portfolio rigidities

Beatriz de Blas ()

International Review of Economics & Finance, 2010, vol. 19, issue 3, 366-382

Abstract: This paper studies the international transmission of productivity and monetary shocks in a general equilibrium two-country monetary model with portfolio rigidities and distribution costs in trade. The model features two types of transport costs (iceberg costs and distribution costs in terms of nontradables) and incomplete markets. The specification employed here is able to generate the domestic liquidity effect, increase in the foreign-domestic interest rate differential, and the nominal depreciation after a monetary injection. Quantitatively, the model with distribution costs as in Burstein, Neves and Rebelo (2003) performs better matching some business cycle moments, but fails to generate the high volatility of exchange rates observed in the data.

Keywords: Flexible; prices; Distribution; costs; Tradables; and; nontradables; Limited; participation; models; Incomplete; markets (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (2)

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Working Paper: Exchange rate dynamics in economies with portfolio rigidities (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:19:y:2010:i:3:p:366-382

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