EconPapers    
Economics at your fingertips  
 

Can sticky price models generate volatile and persistent real exchange rates?

Varadarajan Chari (), Patrick Kehoe () and Ellen McGrattan

No 277, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: The central puzzle in international business cycles is that fluctuations in real exchange rates are volatile and persistent. We quantity the popular story for real exchange rate fluctuations: they are generated by monetary shocks interacting with sticky goods prices. If prices are held fixed for at least one year, risk aversion is high, and preferences are separable in leisure, then real exchanage rates generated by the model are as volatile as in the data and quite persistent, but less so than in the data. The main discrepancy between the model and the data, the consumption—real exchange rate anomaly, is that the model generates a high correlation between real exchange rates and the ratio of consumption across countries, while the data show no clear pattern between these variables.

Keywords: Prices; Econometric models; Foreign exchange rates (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-fmk
Date: 2002
References: Add references at CitEc
Citations: View citations in EconPapers (628) Track citations by RSS feed

Published in Review of Economic Studies (Vol. 69, No. 3, July 2002, pp. 533-563)

Downloads: (external link)
http://minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=819
http://minneapolisfed.org/research/sr/sr277.pdf (application/pdf)

Related works:
Journal Article: Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates? (2002) Downloads
Working Paper: Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates? (2000) Downloads
Working Paper: Can sticky price models generate volatile and persistent real exchange rates? (1998) Downloads
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:fip:fedmsr:277

Ordering information: This working paper can be ordered from
http://www.minneapolisfed.org/pubs/

Access Statistics for this paper

More papers in Staff Report from Federal Reserve Bank of Minneapolis Contact information at EDIRC.
Bibliographic data for series maintained by Jannelle Ruswick ().

 
Page updated 2019-04-22
Handle: RePEc:fip:fedmsr:277