Real Exchange Rate Persistence in Dynamic General-Equilibrium Sticky-Price Models: An Analytical Characterization
AbstractThis paper assesses analytically the ability of dynamic general-equilibrium sticky-price models to generate persistent real exchange rate fluctuations. It develops a tractable general-equilibrium model with Calvo-type price stickiness. The model has a closed-form solution and the persistence of the real exchange rate is explicitly characterized. The paper shows that real exchange rate persistence is pinned down by the probability of not changing prices. This result suggests that standard sticky-price models are unable to generate endogenous persistence.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 03-35.
Length: 30 pages
Date of creation: 2003
Date of revision:
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Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-11-16 (All new papers)
- NEP-DGE-2003-11-16 (Dynamic General Equilibrium)
- NEP-IFN-2003-11-16 (International Finance)
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