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Productivity Shocks and Delayed Exchange-Rate Overshooting

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Author Info
Christian Pierdzioch
Abstract

This paper uses a ‘new open economy macroeconomics’ model to study the effect of a productivity shock on exchange rate dynamics. The special features of the model are that households’ preferences exhibit a "catching up with the Joneses" effect and that international financial markets are imperfectly integrated. Numerical simulations of the model are used to demonstrate that these features imply that, in an otherwise standard ‘new open economy macroeconomics’ model, a productivity shock can give rise to a delayed overshooting of the exchange rate.

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1199.

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Length: 26 pages
Date of creation: Feb 2004
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Handle: RePEc:kie:kieliw:1199

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Related research
Keywords: Productivity shock; Exchange rate overshooting;

Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
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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