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Productivity Shocks and Delayed Exchange-Rate Overshooting

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  • Pierdzioch, Christian

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.

Suggested Citation

  • Pierdzioch, Christian, 2004. "Productivity Shocks and Delayed Exchange-Rate Overshooting," Kiel Working Papers 1199, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1199
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    More about this item

    Keywords

    Productivity shock; Exchange rate overshooting;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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