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Limited participation and exchange rate dynamics: Does theory meet the data?

Author

Listed:
  • Frédéric Karamé

    (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)

  • Lise Patureau

    (THEMA - Théorie économique, modélisation et applications - UCP - Université de Cergy Pontoise - Université Paris-Seine - CNRS - Centre National de la Recherche Scientifique)

  • Thepthida Sopraseuth

    (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)

Abstract

The paper explores the empirical dimensions of a New Open Economy Macronomy model characterized by credit market frictions. We find that these frictions are essential for the model to match a large set of moments of German data. Moreover, the simulated impulse response functions to supply and nominal shocks are consistent with VAR findings. Since the model is estimated on moments rather than on conditional IRFs, this underlines the ability of the model to match the data. Finally, monetary shocks do not seem to be the primary driving force behind the aggregate dynamics, which is consistent with the VAR literature.

Suggested Citation

  • Frédéric Karamé & Lise Patureau & Thepthida Sopraseuth, 2008. "Limited participation and exchange rate dynamics: Does theory meet the data?," Post-Print halshs-00754292, HAL.
    • Handle: RePEc:hal:journl:halshs-00754292
    DOI: 10.1016/j.jedc.2007.04.007
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    7. Diego E. Vacaflores, 2012. "Remittances, Monetary Policy, and Partial Sterilization," Southern Economic Journal, John Wiley & Sons, vol. 79(2), pages 367-387, October.
    8. Franke, Reiner & Jang, Tae-Seok & Sacht, Stephen, 2011. "Moment matching versus Bayesian estimation: Backward-looking behaviour in the new-Keynesian three-equations model," Economics Working Papers 2011-10, Christian-Albrechts-University of Kiel, Department of Economics.
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    More about this item

    Keywords

    New Open Economy Macroeconomics; Limited participation model; Simulated method of moments; Structural estimation;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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