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Influences of Demand Shocks on Exchange Rate Volatility: Imperfect Capital Mobility and Substitutability


  • Gazioglu, Saziye


This paper distinguishes between the degree of capital mobility and asset substitutability in a Dornbusch-type model and investigates the effect of a unit demand shock to the exchange rate volatility by using a simulation approach. Raising the interest rate causes the exchange rate to appreciate over time after the first impact and has a contractionary effect on the economy. An aggregate demand shock leads to a depreciation in the first instance. Overshooting does not take place however due to low marginal propensities to consume. Copyright 1996 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Gazioglu, Saziye, 1996. "Influences of Demand Shocks on Exchange Rate Volatility: Imperfect Capital Mobility and Substitutability," The Manchester School of Economic & Social Studies, University of Manchester, vol. 64(1), pages 79-95, March.
  • Handle: RePEc:bla:manch2:v:64:y:1996:i:1:p:79-95

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    Cited by:

    1. Saziye Gazioglu, 2008. "Stock market returns in an emerging financial market: Turkish case study," Applied Economics, Taylor & Francis Journals, vol. 40(11), pages 1363-1372.

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