This paper studies a dynamic-optimizing model of a semi-small open economy with sticky nominal prices and wages. the model exhibits exchange rate overshooting in response to money supply shocks. the predicted variability of nominal and real exchange rates is roughly consistent with that of G7 effective exchange rates during the post-Bretton Woods era.
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Paper provided by Universite de Montreal, Departement de sciences economiques in its series Cahiers de recherche with number
9614.
Find related papers by JEL classification: E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data) E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles F30 - International Economics - - International Finance - - - General F31 - International Economics - - International Finance - - - Foreign Exchange
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