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The Exchange Rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities [electronic resource] : A Quantitative Investigation / Robert Miguel W.K. Kollman.

By: Kollman, Robert Miguel W.K.
Material type: materialTypeLabelBookSeries: IMF Working Papers; Working Paper: No. 97/7Publisher: Washington, D.C. : International Monetary Fund, 1997Description: 1 online resource (51 p.).ISBN: 1451928521 :.ISSN: 1018-5941.Subject(s): Effective Exchange Rates | Exchange Rate | Exchange Rates | IMF Working Paper | Money Supply | Real Exchange Rates | Canada | France | Italy | United KingdomAdditional physical formats: Print Version:: The Exchange Rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities : A Quantitative InvestigationOnline resources: IMF e-Library | IMF Book Store 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.
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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.

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