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Monetary Shocks And Real Exchange Rates In Sticky Models Of International Business Cycles
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Book Synopsis Monetary Shocks and Real Exchange Rates in Sticky Price Models of International Business Cycles by : V. V. Chari
Download or read book Monetary Shocks and Real Exchange Rates in Sticky Price Models of International Business Cycles written by V. V. Chari and published by . This book was released on 1997 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: The data show large and persistent deviations of real exchange rates from purchasing power parity. Recent work has shown that to a large extent these movements are driven by deviations from the law of one price for traded goods. In the data, real and nominal exchange rates are about 6 times as volatile as relative price levels and they both are highly persistent, with serial correlations of 0.85 and 0.83, respectively. This paper develops a sticky price model with price discriminating monopolists, which produces deviations from the law of one price for traded goods. Our benchmark model, which has prices set for one quarter at a time and a unit consumption elasticity of money demand, does not come close to reproducing these observations. A model which has producers setting prices for 6 quarters at a time and a consumption elasticity of money demand of 0.27 does much better. In it real and nominal exchange rates are about 3 times as volatile as relative price levels and exchange rates are persistent, with serial correlations of 0.65 and 0.66, respectively.
Book Synopsis Monetary shocks and real exchange rates in sticky models of international business cycles by :
Download or read book Monetary shocks and real exchange rates in sticky models of international business cycles written by and published by . This book was released on 1997 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates? by : V. V. Chari
Download or read book Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates? written by V. V. Chari and published by . This book was released on 2000 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: The central puzzle in international business cycles is that real exchange rates are volatile and persistent. The most popular story for real exchange rate fluctuations is that they are generated by monetary shocks interacting with sticky goods prices. We quantify this story and find that it can account for some of the observed properties of real exchange rates. When prices are held fixed for at least one year, risk aversion is high and preferences are separable in leisure, the model generates real exchange rates that are as volatile as in the data. The model also generates real exchange rates that are persistent, but less so than in the data. If monetary shocks are correlated across countries, then the comovements in aggregates across countries are broadly consistent with those in the data. Making asset markets incomplete or introducing sticky wages does not measurably change the results.
Book Synopsis Monetary Shocks and Real Exchange Rates in Sticky Price Models of Internatioanl Business Cycles by : V.V.. Chari
Download or read book Monetary Shocks and Real Exchange Rates in Sticky Price Models of Internatioanl Business Cycles written by V.V.. Chari and published by . This book was released on 1996 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Exchange Rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities by : Robert Miguel W. K. Kollman
Download or read book The Exchange Rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities written by Robert Miguel W. K. Kollman and published by International Monetary Fund. This book was released on 1997-01-01 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis The Dynamic Behavior of the Real Exchange Rate in Sticky Price Models by : Jón Steinsson
Download or read book The Dynamic Behavior of the Real Exchange Rate in Sticky Price Models written by Jón Steinsson and published by . This book was released on 2008 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: Existing empirical evidence suggests that real exchange rates exhibit hump-shaped dynamics. I show that this is a robust fact across nine large, developed economies. This fact can help explain why existing sticky-price business cycle models have been unable to match the persistence of the real exchange rate. The recent literature has focused on models driven by monetary shocks. These models yield monotonic impulse responses for the real exchange rate. It is extremely difficult for models that have this feature to match the empirical persistence of the real exchange rate. I show that in response to a number of different real shocks a two-country sticky-price business cycle model yields hump-shaped dynamics for the real exchange rate. The hump-shaped dynamics generated by the model are a powerful source of endogenous persistence that allows the model to match the long half-life of the real exchange rate.
Book Synopsis Real Exchange Rate Fluctuations and the Business Cycle by : Mr.Bankim Chadha
Download or read book Real Exchange Rate Fluctuations and the Business Cycle written by Mr.Bankim Chadha and published by International Monetary Fund. This book was released on 1996-11-01 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the relationship between the real exchange rate and the business cycle in Japan during the floating rate period. A structural vector autoregression is used to identify different types of macroeconomic shocks that determine fluctuations in aggregate output and the real exchange rate. Relative nominal and real demand shocks are found to be the main determinants of variation in real exchange rate changes, while relative output growth is driven primarily by supply shocks. Historical decompositions suggest that the sharp appreciations of the yen in 1993 and 1995 and its subsequent depreciation can be attributed primarily to relative nominal shocks.
Book Synopsis Can International Macroeconomic Models Explain Low-Frequency Movements of Real Exchange Rates? by : Mr.Pau Rabanal
Download or read book Can International Macroeconomic Models Explain Low-Frequency Movements of Real Exchange Rates? written by Mr.Pau Rabanal and published by International Monetary Fund. This book was released on 2012-01-01 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Real exchange rates exhibit important low-frequency fluctuations. This makes the analysis of real exchange rates at all frequencies a more sound exercise than the typical business cycle one, which compares actual and simulated data after the Hodrick-Prescott filter is applied to both. A simple two-country, two-good model, as described in Heathcote and Perri (2002), can explain the volatility of the real exchange rate when all frequencies are studied. The puzzle is that the model generates too much persistence of the real exchange rate instead of too little, as the business cycle analysis asserts. Finally, we show that the introduction of adjustment costs in production and in portfolio holdings allows us to reconcile theory and this feature of the data.
Book Synopsis Hysteresis and Business Cycles by : Ms.Valerie Cerra
Download or read book Hysteresis and Business Cycles written by Ms.Valerie Cerra and published by International Monetary Fund. This book was released on 2020-05-29 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditionally, economic growth and business cycles have been treated independently. However, the dependence of GDP levels on its history of shocks, what economists refer to as “hysteresis,” argues for unifying the analysis of growth and cycles. In this paper, we review the recent empirical and theoretical literature that motivate this paradigm shift. The renewed interest in hysteresis has been sparked by the persistence of the Global Financial Crisis and fears of a slow recovery from the Covid-19 crisis. The findings of the recent literature have far-reaching conceptual and policy implications. In recessions, monetary and fiscal policies need to be more active to avoid the permanent scars of a downturn. And in good times, running a high-pressure economy could have permanent positive effects.
Book Synopsis Essays on Sticky Price Models of the International Business Cycle by : Oleg A. Zamouline
Download or read book Essays on Sticky Price Models of the International Business Cycle written by Oleg A. Zamouline and published by . This book was released on 2001 with total page 236 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Explaining International Comovements of Output and Asset Returns by : Robert Miguel W. K. Kollman
Download or read book Explaining International Comovements of Output and Asset Returns written by Robert Miguel W. K. Kollman and published by International Monetary Fund. This book was released on 1999-06-01 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirically, output and asset returns are highly positively correlated across the United States and the other major industrialized countries. Standard business cycle models that assume flexible prices and wages, in the Real Business Cycle tradition, have great difficulties explaining this fact. This paper presents a dynamic-optimizing stochastic general equilibrium model of a two-country world with sticky nominal prices and wages and a flexible exchange rate. The structure here predicts positive international transmission of country-specific monetary policy and technology shocks, and it generates sizable cross-country correlations of output and of asset returns.
Author :Wai-Ming Ho Publisher :London : Department of Economics, University of Western Ontario ISBN 13 : Total Pages :60 pages Book Rating :4.:/5 (318 download)
Book Synopsis Liquidity, Exchange Rates, and Business Cycles by : Wai-Ming Ho
Download or read book Liquidity, Exchange Rates, and Business Cycles written by Wai-Ming Ho and published by London : Department of Economics, University of Western Ontario. This book was released on 1992 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Dominant Currency Paradigm: A New Model for Small Open Economies by : Camila Casas
Download or read book Dominant Currency Paradigm: A New Model for Small Open Economies written by Camila Casas and published by International Monetary Fund. This book was released on 2017-11-22 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: Most trade is invoiced in very few currencies. Despite this, the Mundell-Fleming benchmark and its variants focus on pricing in the producer’s currency or in local currency. We model instead a ‘dominant currency paradigm’ for small open economies characterized by three features: pricing in a dominant currency; pricing complementarities, and imported input use in production. Under this paradigm: (a) the terms-of-trade is stable; (b) dominant currency exchange rate pass-through into export and import prices is high regardless of destination or origin of goods; (c) exchange rate pass-through of non-dominant currencies is small; (d) expenditure switching occurs mostly via imports, driven by the dollar exchange rate while exports respond weakly, if at all; (e) strengthening of the dominant currency relative to non-dominant ones can negatively impact global trade; (f) optimal monetary policy targets deviations from the law of one price arising from dominant currency fluctuations, in addition to the inflation and output gap. Using data from Colombia we document strong support for the dominant currency paradigm.
Book Synopsis Essays in International Economics by : Mehmet Fatih Ekinci
Download or read book Essays in International Economics written by Mehmet Fatih Ekinci and published by . This book was released on 2011 with total page 162 pages. Available in PDF, EPUB and Kindle. Book excerpt: "In Chapter 1, we present and study the properties of a sticky information exchange rate model where consumers and producers update their information sets infrequently. We find that introducing inattentive consumers has important implications. Through a mechanism resembling the limited participation models, we can address the exchange rate volatility for reasonable values of risk aversion. We observe more persistence in output, consumption and employment which brings us closer to the data. Impulse responses to monetary shocks are hump shaped, consistent with the empirical evidence. Forecast errors of inattentive consumers provide a channel to reduce the correlation of relative consumption and real exchange rate. However, we find that decline in the correlation is quantitatively small. Chapter 2 explores the international business cycle implications of replacing the sticky price assumption with sticky information. We assume attentive consumers through this exercise. Mankiw and Reis (2002) propose the sticky information model to generate a lagged inflation response to monetary shocks consistent with the empirical evidence. Their model is also successful to address the inflation persistence observed in the data. We conjecture that sticky information assumption could be helpful to resolve the 'persistence anomaly' of the real exchange rates. We show that hump-shaped inflation response result is sensitive to the assumptions on the monetary policy and price setting block of the model. Furthermore, the response of nominal exchange rate is quite large and it dissipates quickly after a monetary shock. The improvement obtained in the real exchange rate persistence by the lagged inflation response is dominated by the large and short-lived nominal exchange rate responses, therefore it is quantitatively small. For all alternative specifications, we find that sticky information and sticky price models produce similar moments. Chapter 3 investigates the degree of financial integration within and between European countries. We construct two measures of de-facto integration across European regions to capture 'diversification' and 'development finance' in the language of Obstfeld and Taylor (2005). We find evidence that capital market integration within the EU is less than what is implied by theoretical benchmarks and also less than what is found for U.S. states. We ask why is this the case? Using country-level data for economic institutions, we find that these are not able to explain differences between countries. Using regional data from the World Values Surveys, we investigate the effect of 'social capital' on financial integration among European regions. We find regions, where the level of confidence and trust is high, are more financially integrated with each other"--Page v-vi.
Book Synopsis Technology Shocks and Aggregate Fluctuations by : Mr.Pau Rabanal
Download or read book Technology Shocks and Aggregate Fluctuations written by Mr.Pau Rabanal and published by International Monetary Fund. This book was released on 2004-12-01 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: Our answer: Not so well. We reached that conclusion after reviewing recent research on the role of technology as a source of economic fluctuations. The bulk of the evidence suggests a limited role for aggregate technology shocks, pointing instead to demand factors as the main force behind the strong positive comovement between output and labor input measures.
Book Synopsis Financial Differences and Business Cycle Co-movements in a Currency Area by : Ester Faia
Download or read book Financial Differences and Business Cycle Co-movements in a Currency Area written by Ester Faia and published by . This book was released on 2005 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Inflation Targeting and Exchange Rate Management In Less Developed Countries by : Mr.Marco Airaudo
Download or read book Inflation Targeting and Exchange Rate Management In Less Developed Countries written by Mr.Marco Airaudo and published by International Monetary Fund. This book was released on 2016-03-08 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy where macroeconomic fluctuations can be driven by self-fulfilling expectations. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank leans heavily against the wind in a managed float.
