Real Exchange Rate Persistence in Dynamic General-Equilibrium Sticky-Price Models: An Analytical Characterization

Hafedh Bouakez

Staff Working Papers from Bank of Canada

Abstract: This paper assesses analytically the ability of dynamic general-equilibrium sticky-price models to generate persistent real exchange rate fluctuations. It develops a tractable general-equilibrium model with Calvo-type price stickiness. The model has a closed-form solution and the persistence of the real exchange rate is explicitly characterized. The paper shows that real exchange rate persistence is pinned down by the probability of not changing prices. This result suggests that standard sticky-price models are unable to generate endogenous persistence.

JEL-codes: F31 F41 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2003
New Economics Papers: this item is included in nep-dge and nep-ifn
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:03-35

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