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Exchange Rate Expectations Redux and Monetary Policy Author info | Abstract | Publisher info | Download info | Related research | Statistics Christian Pierdzioch
This paper uses a dynamic general equilibrium optimizing two-country model to analyze how the formation of exchange rate expectations shapes the effects of monetary policy shocks in open economies. The model implies that the short-run output effects of permanent monetary policy shocks diminish if 'noise traders' in the foreign exchange market form regressive exchange rate expectations. If the influence of these noise traders is strong enough, a permanent expansionary monetary policy shock can result in a temporary decline of the output in the country in which it takes place. The output effects of temporary monetary policy shocks are magnified when noise traders form regressive exchange rate expectations.
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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number
1109.
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Length: 32 pages
Date of creation: May 2002Date of revision:
Handle: RePEc:kie:kieliw:1109Contact details of provider: Phone: +49 431 8814-1 Fax: +49 431 85853 Email: Web page: http://www.ifw-kiel.de
For technical questions regarding this item, or to correct its listing, contact: (Dieter Stribny).
Keywords: Monetary policy ; Exchange rate expectations ; Noise trading ; Find related papers by JEL classification: F31 - International Economics - - International Finance - - - Foreign Exchange F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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Other versions:
Maurice Obstfeld and Kenneth Rogoff., 1995.
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Center for International and Development Economics Research (CIDER) Working Papers
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[Downloadable!] (restricted) Dornbusch, Rudiger, 1976.
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[Downloadable!]
Other versions:
Jeffrey A. Frankel & Kenneth A. Froot, 1988.
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NBER Working Papers
2216, National Bureau of Economic Research, Inc.
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[Downloadable!] (restricted)
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