Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates? PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates? PDF full book. Access full book title Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates? by V. V. Chari. Download full books in PDF and EPUB format.
Author: V. V. Chari
Publisher:
ISBN:
Category : Business cycles
Languages : en
Pages : 66
Get Book Here
Book Description
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.
Author: V. V. Chari
Publisher:
ISBN:
Category : Business cycles
Languages : en
Pages : 66
Get Book Here
Book Description
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.
Author: Michael Moore
Publisher:
ISBN:
Category :
Languages : en
Pages : 29
Get Book Here
Book Description
The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. The model is simulated using the artificial economy methodology. It successfully explains (i) the high volatility of nominal and real exchange rates, (ii) the high correlation between real and nominal rates, and (iii) the persistence of real exchange rates. It offers a neo-classical explanation for the Meese-Rogoff exchange rate forecasting puzzle.
Author: Mario John Crucini
Publisher:
ISBN:
Category : Foreign exchange rates
Languages : en
Pages : 60
Get Book Here
Book Description
Volatile and persistent real exchange rates are observed not only in aggregate series but also in the individual good level data. Kehoe and Midrigan (2007) recently showed that, under a standard assumption on nominal price stickiness, empirical frequencies of micro price adjustment cannot replicate the time-series properties of the law-of-one-price deviations. We extend their sticky price model by combining good specific price adjustment with information stickiness in the sense of Mankiw and Reis (2002). Under a reasonable assumption on the money growth process, we show that the model fully explains both persistence and volatility of the good-level real exchange rates. Furthermore, our framework allows for multiple cities within a country. Using a panel of U.S.-Canadian city pairs, we estimate a dynamic price adjustment process for each 165 individual goods. The empirical result suggests that the dispersion of average time of information update across goods is comparable to that of average time of price adjustment.--Author's description
Author: Alok Johri
Publisher:
ISBN:
Category : Foreign exchange
Languages : en
Pages :
Get Book Here
Book Description
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
The U.S. National Bureau of Economic Research (NBER), located in Cambridge, Massachusetts, presents an abstract of the September 2000 paper entitled "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?" written by Patrick J. Kehoe, V.V. Chari, and Ellen R. McGrattan. The paper is number W7869 in the NBER Working Paper series and the full text is available for purchase in PDF format. This paper discusses international business cycles and real exchange rates.
Author: V. V. Chari
Publisher:
ISBN:
Category : Business cycles
Languages : en
Pages : 52
Get Book Here
Book Description
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.
Author: Jón Steinsson
Publisher:
ISBN:
Category : Foreign exchange rates
Languages : en
Pages : 25
Get Book Here
Book Description
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.
Author: Serena Ng
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
This paper provides an empirical assessment of the importance of sticky prices in accounting for the variations and the persistence in real exchange rates. Vector autoregressions with five variables from two countries that always include the United States are estimated. Restrictions are imposed to identify a global shock, and two sets of country specific output shocks. One set of shocks is associated with instantaneous price adjustments, while the other has delayed effects on prices. Data from the G7 countries reveal that U.S sticky price shocks are the dominant source of real exchange rate variations. But these shocks have reasonably short half-lives and cannot account for the observed real exchange rate persistence. Non-sticky price shocks can induce very persistent real exchange rate dynamics, even though they account for little of the historical real exchange rate variations.
Author: Mr.Bankim Chadha
Publisher: International Monetary Fund
ISBN: 1451848323
Category : Business & Economics
Languages : en
Pages : 31
Get Book Here
Book Description
This paper decomposes longer-run movements in (major) dollar real exchange rates into components associated with changes in nominal exchange rates and price levels, and their comovements. Though the decompositions suggest some permanent movements, they imply that there are large transitory components in real exchange rates. These transitory components in real exchange rates are found to be closely associated with those in nominal exchange rates. A stochastic version of Dornbusch’s overshooting model—configured with representative parameter values for the United States and subjected to permanent nominal shocks—can rationalize these transitory comovements of nominal and real exchange rates as well as several other features of the decompositions.
Author: Patrick J. Kehoe
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
The classic explanation for the persistence and volatility of real exchange rates is that they are the result of nominal shocks in an economy with sticky goods prices. A key implication of this explanation is that if goods have differing degrees of price stickiness then relatively more sticky goods tend to have relatively more persistent and volatile good-level real exchange rates. Using panel data, we find only modest support for these key implications. The predictions of the theory for persistence have some modest support: in the data, the stickier is the price of a good the more persistent is its real exchange rate, but the theory predicts much more variation in persistence than is in the data. The predictions of the theory for volatiity fare less well: in the data, the stickier is the price of a good the smaller is its conditional variance while in the theory the opposite holds. We show that allowing for pricing complementarities leads to a modest improvement in the theory's predictions for persistence but little improvement in the theory's predictions for conditional variances.
