Expectations, stability, and exchange rate dynamics under the Post Keynesian hypothesis
AbstractThis paper considers the recent empirical support for the Post Keynesian hypothesis on the role of expectations in the foreign exchange market. Our specific interests are whether the model exhibits stability, and whether an overshooting phenomenon is observed. The model is likely to be stable for plausible parameter values, contrary to the conclusion of saddle-point instability in the "sticky price monetary model." Overshooting is possible for expectations for the medium-term horizon, but undershooting is also possible for the short-term horizon. Because the extrapolative expectations are stronger than the regressive expectations, undershooting is likely for the actual exchange rate in the short run.
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Bibliographic InfoArticle provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.
Volume (Year): 27 (2004)
Issue (Month): 1 (October)
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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348
exchange rate expectations; stability;
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- John T. Harvey, 2009.
"Currency Market Participants' Mental Model and the Collapse of the Dollar: 2001-2008,"
Journal of Economic Issues,
M.E. Sharpe, Inc., vol. 43(4), pages 931-949, December.
- John Harvey, 2009. "Currency Market Participants' Mental Model and the Collapse of the Dollar: 2001-2008," Working Papers 200901, Texas Christian University, Department of Economics.
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