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The Fragility of Overshooting

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  • Pippenger, John

Abstract

Using VAR, a large literature claims to find evidence of some form of Dornbuschovershooting. But the evidence is fragile in the sense of Leamer. The literature uses the wrong test for overshooting, unusually narrow confidence intervals and questionable shocks. In addition, it is difficult to reconcile overshooting with the fact that daily and weekly exchangerates are approximately martingales.

Suggested Citation

  • Pippenger, John, 2012. "The Fragility of Overshooting," University of California at Santa Barbara, Economics Working Paper Series qt4rd5j98c, Department of Economics, UC Santa Barbara.
  • Handle: RePEc:cdl:ucsbec:qt4rd5j98c
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    Keywords

    Business; Social and Behavioral Sciences; overshooting; fragility; exchange rate; martingale; impulse response; step response;

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