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Money and Exchange Rates in the Grossman-Weiss-Rotemberg Model

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  • Fernando Alvarez
  • Andrew Atkeson

Abstract

We examine the impact of monetary injections in the Grossman-Weiss-Rotemberg Model and show that monetary shocks can lead to nominal exchange rates that are more volatile than inflation, money growth or interest rate differentials. Moreover, movements in real exchange rates following monetary injections can be persistent and nearly as large as movements in nominal exchange rates nominal exchange rates.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5678.

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Date of creation: Jul 1996
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Publication status: published as Journal of Monetary Economics, Vol. 40, no. 3 (1997): 619-640.
Handle: RePEc:nbr:nberwo:5678

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  1. Flood, Robert P. & Rose, Andrew K., 1995. "Fixing exchange rates A virtual quest for fundamentals," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 3-37, August.
  2. Julio J. Rotemberg, 1982. "Money and the Terms of Trade," NBER Working Papers 1003, National Bureau of Economic Research, Inc.
  3. Jovanovic, Boyan, 1982. "Inflation and Welfare in the Steady State," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 561-77, June.
  4. Julio J. Rotemberg, 1982. "A Monetary Equilibrium Model with Transactions Costs," NBER Working Papers 0978, National Bureau of Economic Research, Inc.
  5. Grossman, Sanford & Weiss, Laurence, 1983. "A Transactions-Based Model of the Monetary Transmission Mechanism," American Economic Review, American Economic Association, vol. 73(5), pages 871-80, December.
  6. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
  7. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
  8. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February.
  9. Grilli, Vittorio & Roubini, Nouriel, 1992. "Liquidity and exchange rates," Journal of International Economics, Elsevier, vol. 32(3-4), pages 339-352, May.
  10. Baxter, Marianne & Stockman, Alan C., 1989. "Business cycles and the exchange-rate regime : Some international evidence," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 377-400, May.
  11. Don E. Schlagenhauf & Jeffrey M. Wrase, 1992. "Liquidity and real activity in a simple open economy model," Discussion Paper / Institute for Empirical Macroeconomics 57, Federal Reserve Bank of Minneapolis.
  12. Romer, David, 1986. "A Simple General Equilibrium Version of the Baumol-Tobin Model," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 663-85, November.
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