 The Exchange Rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities: A Quantitative InvestigationRobert Kollman
No 1997/007, IMF Working Papers from International Monetary Fund Abstract: This paper studies dynamic-optimizing model of a semi-small open economy with sticky nominal prices and wages. The model exhibits exchange rate overshooting in response to money supply shocks. The predicted variability of nominal and real exchange rates is roughly consistent with that of G-7 effective exchange rates during the post-Bretton Woods era. The model predicts that a positive domestic money supply shock lowers the domestic nominal interest rate, that it raises output and that it leads to a nominal and real depreciation of the country’s currency. Increases in domestic labor productivity and in the world interest rate too are predicted to induce a nominal and real exchange rate depreciation. Keywords: WP; exchange rate; money supply; price level; money supply shock; money stock; U.S. dollar; consumption price index Pt; money supply supply shock; open economy; Real exchange rates; Exchange rates; Monetary base; Currencies; Consumption; Europe (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1997/007 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC. |
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