Noisy Financial Signals and Persistent Effects of Nominal Shocks in Open Economies

Torben M Andersen and Niels C Beier

No 2360, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Floating exchange rates display substantial short-run volatility causing a nontrivial information problem in disentangling temporary from permanent changes. Although agents observe current market signals they are imperfectly informed about the future, but they accumulate information and learn over time. We analyze how this basic information problem in the presence of one-period nominal contracts affects the dynamic adjustment process to nominal shocks. Specifically we use a general equilibrium two-country model with specialized production and one-period nominal contracts and consider the propagation of nominal shocks. Informational problems are shown to have important qualitative and potentially strong quantitative importance for the propagation of nominal shocks.

Keywords: Exchange rates; Imperfect information; Learning; Nominal shocks; Persistence; Temporary and permanent shocks (search for similar items in EconPapers)
JEL-codes: E32 F41 (search for similar items in EconPapers)
Date: 2000-01
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://cepr.org/publications/DP2360 (application/pdf)

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:cpr:ceprdp:2360

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP2360

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().