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Reverse Shooting of Exchange Rates

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  • Peijie Wang

    ()
    (University of Hull, IESEG School of Management)

Abstract

Reverse shooting of the exchange rate has been put forward in this paper by scrutinizing the adjustment and evolution of the exchange rate towards its new long-run equilibrium level following a change in money supply. Joint and sequential effects of covered interest rate parity and the sticky price on the rise, from the short-term through the long-run horizon, result in a feature of reverse shooting of the exchange rate. Regardless of what the immediate response of the exchange rate to the change in money supply can be argued for, reverse shooting homogenizes the evolution path of exchange rate adjustment and movement from different views.

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File URL: http://my.ieseg.fr/bienvenue/DownloadDoc.asp?Fich=920656083_2009-FIN-02_Wang.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by IESEG School of Management in its series Working Papers with number 2009-FIN-02.

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Length: 17 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:ies:wpaper:f200902

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Keywords: exchange rate; reverse shooting;

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  1. Frankel, Jeffrey A, 1979. "On the Mark: A Theory of Floating Exchange Rates Based on Real Interest Differentials," American Economic Review, American Economic Association, vol. 69(4), pages 610-22, September.
  2. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  3. Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, vol. 93(5), pages 1449-1475, December.
  4. Driskill, Robert, 1981. "Exchange rate overshooting, the trade balance, and rational expectations," Journal of International Economics, Elsevier, vol. 11(3), pages 361-377, August.
  5. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
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