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Exchange rate dynamics, asset market structure and the role of the trade elasticity Author info | Abstract | Publisher info | Download info | Related research | Statistics Christoph Thoenissen ()
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This paper shows that a canonical flexible price international real business cycle model with incomplete financial markets can address the exchange rate volatility puzzle, the exchange rate persistence puzzle, the consumption real exchange rate anomaly, as well as the quantity anomaly. Crucial for the success of the model is the choice of the elasticity of substitution between home and foreign produced goods. The paper shows that the range of this parameter which allows the model to address these international macroeconomics anomalies is very narrow. Furthermore, the paper highlights an anomalous relationship between real exchange rate persistence and the elasticity of substitution between home and foreign-produced goods.
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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number
0803.
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Date of creation: Jan 2008Date of revision:
Handle: RePEc:san:cdmawp:0803Contact details of provider: Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL Phone: 01334 462420 Fax: 01334 462444 Email: Web page: http://www.st-andrews.ac.uk/cdma More information through EDIRC
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Keywords: real exchange rate dynamics ; incomplete financial markets ; Backus-Smith puzzle ; exchange rate persistence ; trade elasticity. ; Other versions of this item:
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
This paper has been announced in the following NEP Reports :
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Martin Bodenstein, 2008.
"Trade elasticity of substitution and equilibrium dynamics ,"
International Finance Discussion Papers
934, Board of Governors of the Federal Reserve System (U.S.).
[Downloadable!]
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