Exchange Rate Dynamics in a Model with Staggered Wage Contracts

David Backus

Working Paper from Economics Department, Queen's University

Abstract: A Dornbusch model with overlapping multi-period wage contracts and rational expectations is specified and estimated with Canadian and U.S. data. Estimated wage-price dynamics imply a typical contract length of about six quarters. Simulations indicate: 1) the exchange rate overshoots following a permanent money supply shock; 2) managed floating exacerbates the impact of foreign business cycles on the Canadian economy; 3) anticipated cold-turkey disinflation is fairly cheap in terms of lost output.

Pages: 32 pages
Date: 1984
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:561

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