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Velocità attesa ed overshooting nel modello di Dornbusch

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  • Riccardo Paternò

Abstract

The Expected Rate of Convergence to the Study State in the Model of Dornbusch (di Riccardo Paternò) - ABSTRACT: In the Dornbusch model, the (d) interest rate speed of adjustment, q*, is a function of (p), price flexibility; (d, s) price and interest rate elasticity of real demand; (l) interest rate responsiveness of money demand. However, while an increase in p, and/or d and/or s, increases q* and decreases overshooting, an increase in l, decreases q* and the overshooting. Dornbusch has shown these effects, but never explained why the same overshooting rate could be coherent with n values of ?*.. We show the reason for this effect. Furthermore we show an incoherence in Dornbusch arguments as he states the More generally, those factors that serves to speed up the adjustment process, in particular high interest rate responsiveness of money demand, but also that the economy will converge faster the lower the interest response of money demand. In order to provide an explanation we suppose that in the two passages, l is related to two different concepts: adjustment speed and total adjustment time. However we show that total adjustment time is uniquely and inversely related to ?*, therefore there cannot be two different causaliy links: from l to ?*, and l and total adjustment time. The incoherence in Dornbusch passage remains.

Suggested Citation

  • Riccardo Paternò, 2003. "Velocità attesa ed overshooting nel modello di Dornbusch," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2003(81).
  • Handle: RePEc:fan:steste:v:html10.3280/ste2003-081003
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