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Dornbusch's Overshooting Model After Twenty-Five Years

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  • Kenneth Rogoff

Abstract

This Mundell Fleming lecture at the International Monetary Fund’s 2001 annual research conference marks the 25th anniversary of Rudiger Dornbusch’s masterpiece, “Expectations and Exchange Rate Dynamics,” a seminal contribution to both policy and research in the field of international finance. This essay provides a simple overview of the model as well as some empirics, not only on exchange rates but on measures of the paper’s influence. Last, but not least, I offer some personal reflections on how Dornbusch conveyed the ideas in his “overshooting model” to inspire a generation of students.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/39.

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Length: 41
Date of creation: 01 Feb 2002
Date of revision:
Handle: RePEc:imf:imfwpa:02/39

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Related research

Keywords: Exchange rates; exchange rate; rational expectations; money supply; real exchange rate dynamics; inflation; effective exchange rate; flexible real exchange rate; monetary policy; price level; current account balance; real effective exchange rate; aggregate demand; foreign exchange; exchange rate volatility; floating real interest rates; exchange rate adjustment; monetary economics; nominal exchange rate; nominal interest rates; exchange rate expectations; exchange rate overshooting; real interest rate; home currency; exchange rate determination; exchange rate literature; relative price; exchange rate theory; rate of inflation; foreign currency; exchange rate movements; spot exchange rate regimes; exchange rate changes; exchange rate regime; exchange rate depreciation; fixed exchange rate pass; currency substitution; foreign exchange market; money growth;

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Cited by:
  1. Ganelli, Giovanni & Lane, Philip R., 2002. "Dynamic General Equilibrium Analysis: The Open Economy Dimension," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3540, C.E.P.R. Discussion Papers.
  2. Hilde C. Bjørnland, 2009. "Monetary policy and exchange rate overshooting: Dornbusch was right after all," Working Paper, Norges Bank 2009/09, Norges Bank.
  3. Pippenger, John, 2008. "Freely Floating Exchange Rates Do Not Systematically Overshoot," University of California at Santa Barbara, Economics Working Paper Series qt97m8z6hw, Department of Economics, UC Santa Barbara.
  4. Zsolt Darvas & Gábor Rappai & Zoltán Schepp, 2007. "Uncovering Yield Parity: A New Insight into the UIP Puzzle through the Stationarity of Long Maturity Forward Rates," Money Macro and Finance (MMF) Research Group Conference 2006, Money Macro and Finance Research Group 84, Money Macro and Finance Research Group.
  5. Arie Krampf, 2012. "The Consolidation of the Anglo-Saxon/European Consensus on Price Stability - From International Coordination to a Rule-Based Monetary Regime," KFG Working Papers, Free University Berlin p0047, Free University Berlin.
  6. Jose De Gregorio & Eric Parrado, 2006. "Overshooting Meets Inflation Targeting," Working Papers Central Bank of Chile, Central Bank of Chile 394, Central Bank of Chile.
  7. Chowdhry, Bhagwan & Roll, Richard & Xia, Yihong, 2003. "Extracting Inflation from Stock Returns to Test Purchasing Power Parity," Working Papers, University of Pennsylvania, Wharton School, Weiss Center 03-1, University of Pennsylvania, Wharton School, Weiss Center.
  8. Bjørnland, Hilde C., 2005. "Monetary Policy and the Illusionary Exchange Rate Puzzle," Memorandum, Oslo University, Department of Economics 26/2005, Oslo University, Department of Economics.
  9. Sergio Clavijo & Carlos Varela, . "Flotación Cambiaria y Esterilización Monetaria: La Experiencia de Colombia," Borradores de Economia 256, Banco de la Republica de Colombia.
  10. Philippe Beaugrand, 2003. "Overshooting and Dollarization in the Democratic Republic of the Congo," IMF Working Papers 03/105, International Monetary Fund.
  11. Heinlein, Reinhold & Krolzig, Hans-Martin, 2012. "On the construction of two-country cointegrated VAR models with an application to the UK and US," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62310, Verein für Socialpolitik / German Economic Association.

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