Endogenous Rigidities and Real Exchange Rates
AbstractA central feature of international business cycles is that fluctuations of real and nominal exchange rates are volatile and persistent. Recent two-country dynamic general equilibrium models have explored the implications for real exchange rate fluctuations from monetary shocks in the presence of nominal rigidities. Without substantial price-stickiness, these models cannot match the persistence of real exchange rates. Our paper builds a two-country model with nominal rigidities and incomplete asset markets. Deviations from purchasing power parity arise from the need to use local labor in order to make imported goods available for consumption and production. We consider an alternative view of real marginal cost, which comprises (local and imported) produced inputs and variable utilization of the capital stock. These features reduce the elasticity of marginal cost with respect to output, thus reducing the extent of price adjustments by firms in response to a monetary shock, and generate responses of output and consumption to shifts in monetary policy that persist beyond the period of (exogenously imposed) price stickiness. Finally, we consider general demand aggregators (allowing for kinked demand functions). We explore the (quantitative) properties of our model for the volatility and persistence of nominal and real exchange rates
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 804.
Date of creation: 2004
Date of revision:
Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
Endogenous Rigidities; Persistence; Real Exchange Rate;
Find related papers by JEL classification:
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.