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Simulating exchange rate shocks in the MPS and MCM models : an evaluation

  • Arnold S. Kling
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    In 1983 and 1984, the United States economy staged a vigorous economic recovery at a time when the value of the dollar was high and rising, leading to a steady deterioration of the trade balance. The strength of both the economy and the dollar exceeded most forecasts. This raises a question: are there expansionary effects from a currency appreciation that are overlooked when we focus solely on the trade balance? ; The purpose of this paper is to try and resolve the issue of whether or not an appreciation of the dollar is expansionary. To do so, I evaluate the simulation properties of the MPS and MCM models. As part of this evaluation, I develop a "back-of-the-envelope" model to serve as a third alternative against which to compare the two large econometric models.

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    File URL: http://www.federalreserve.gov/pubs/ifdp/1985/260/default.htm
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    File URL: http://www.federalreserve.gov/pubs/ifdp/1985/260/ifdp260.pdf
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    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 260.

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    Date of creation: 1985
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    Handle: RePEc:fip:fedgif:260
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    1. Peter Hooper, 1984. "International repercussions of the U.S. budget deficit," International Finance Discussion Papers 246, Board of Governors of the Federal Reserve System (U.S.).
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