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The Empirical Relevance of a basic sticky-price intertemporal model

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  • Massimo Giuliodori

Abstract

In this paper, we first outline the monetary version of the sticky price intertemporal model of Obstfeld and Rogoff (1995, 1996), in which monetary shocks unambiguously generate apermanent nominal exchange rate depreciation and a temporary current account surplus. Wethen empirically investigate these theoretical predictions in two structural VAR systems for15 OECD countries over the period 1979-1999, using the long-run restriction identificationscheme suggested by Clarida and Galì (1994). Our empirical findings support the mainpredictions of the basic model, as well as suggesting that monetary shocks play an importantrole in the current account fluctuations. Moreover, we find that more open economies showgreater sensitivity of the current account to monetary shocks.

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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2001_17.

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Handle: RePEc:gla:glaewp:2001_17

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