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Exchange Rate Dynamics Redux

Maurice Obstfeld and Kenneth Rogoff ()

No 4693, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Until now, thinking on open economy macroeconomics has been largely schizophrenic. When it comes to analyzing exchange rate dynamics, an empirically-minded economist abandons modern current account models which, while theoretically coherent, fail to address the awkward reality of sticky nominal prices. In this paper we develop an analytically tractable two-country model that marries a full account of dynamics to a supply framework based on monopolistic competition and sticky prices. It offers simple and intuitive predictions about exchange rates and current accounts that sometimes differ sharply from those of either modern flexible-price intertemporal models, or traditional sticky-price Keynesian models. The model also leads to a novel perspective on the international welfare spillovers of monetary and fiscal policies.

JEL-codes: F41 (search for similar items in EconPapers)
Date: 1994-04
Note: IFM
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Published as Journal of Political Economy 102 (June 1995), pp 624-660.

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Working Paper: Exchange Rate Dynamics Redux (1995)
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