Exchange rates and international relative prices and quantities in equilibrium models with alternative preference specifications

Elvan Ozlu, Don Schlagenhauf and Jeffrey Wrase

No 96-10, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Dynamic open economy models with time-separable, deterministic utilities fail to account for observed dynamics of exchange rates and international relative prices and quantities. This paper examines the ability of extensions of existing open economy models to account for exchange rates, international relative prices, and international trade quantities. The extensions involve preferences with taste shocks and nontime-separable utilities in habit persistence form. Quantitative properties of calibrated versions of the models are examined in light of time series properties of key international variables.

Keywords: Foreign exchange rates; International trade; Prices (search for similar items in EconPapers)
Date: 1996
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