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Technical note on "The real exchange rate in sticky price models: does investment matter?"

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Author Info

  • Enrique Martinez-Garcia
  • Jens Søndergaard

Abstract

This technical note is developed as a mathematical companion to the paper "The Real Exchange Rate in Sticky Price Models: Does Investment Matter?" (Institute working paper no. 17). It contains three basic calculations. First, we derive the equilibrium conditions of the model. Second, we compute the zero-inflation, zero-trade balance (deterministic) steady state. Third, we describe the log-linearization of the equilibrium conditions around the deterministic steady state. Simultaneously, we explain the system of equations that constitutes the basis for the paper to broaden its scope. Commentary is provided whenever necessary to complement the model description and to place into context the assumptions embedded in our DSGE framework.

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File URL: http://dallasfed.org/assets/documents/institute/wpapers/2008/0016.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 16.

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Date of creation: 2008
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Handle: RePEc:fip:feddgw:16

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Related research

Keywords: Globalization ; Foreign exchange ; International finance ; Forecasting ; Mathematical models;

References

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  1. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
  2. Jian Wang & Charles Engel, 2008. "International Trade in Durable Goods: Understanding Volatility, Cyclicality, and Elasticities," 2008 Meeting Papers 210, Society for Economic Dynamics.
  3. Chari, V V & Kehoe, Patrick J & McGrattan, Ellen R, 2002. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," Review of Economic Studies, Wiley Blackwell, vol. 69(3), pages 533-63, July.
  4. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
  5. Jon Steinsson, 2005. "The Dynamic Behavior of the Real Exchange Rate in Sticky Price Models," Economics wp28_jonst, Department of Economics, Central bank of Iceland.
  6. Galí, Jordi & Monacelli, Tommaso, 2002. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," CEPR Discussion Papers 3346, C.E.P.R. Discussion Papers.
  7. Warnock, Francis E., 2003. "Exchange rate dynamics and the welfare effects of monetary policy in a two-country model with home-product bias," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 343-363, June.
  8. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  9. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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Cited by:
  1. Enrique Martinez-Garcia & Jens Sondergaard, 2009. "Investment and trade patterns in a sticky-price, open-economy model," Globalization and Monetary Policy Institute Working Paper 28, Federal Reserve Bank of Dallas.
  2. Martinez-Garcia, Enrique & Sondergaard, Jens, 2009. "The real exchange rate in sticky-price models: does investment matter?," Bank of England working papers 368, Bank of England.

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