Kiel Working Papers, Kiel Institute for World Economics
No 1199:
Productivity Shocks and Delayed Exchange-Rate Overshooting
Christian Pierdzioch
Abstract: This paper uses a ‘new open economy macroeconomics’ model
to study the effect of a productivity shock on exchange rate dynamics. The
special features of the model are that households’ preferences exhibit a
"catching up with the Joneses" effect and that international financial
markets are imperfectly integrated. Numerical simulations of the model are
used to demonstrate that these features imply that, in an otherwise
standard ‘new open economy macroeconomics’ model, a productivity shock can
give rise to a delayed overshooting of the exchange rate.
Keywords: Productivity shock; Exchange rate overshooting; (follow links to similar papers)
JEL-Codes: F31,; F32,; F41; (follow links to similar papers)
26 pages, February 2004
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