IDEAS home Printed from https://ideas.repec.org/p/phs/dpaper/201414.html
   My bibliography  Save this paper

Exchange-Rate Overshooting: An Analysis for Intermediate Macro

Author

Listed:
  • Fidelina B. Natividad-Carlos

    (School of Economics, University of the Philippines Diliman)

Abstract

While exchange rate dynamics is an important topic in open economy macroeconomics, the standard tool commonly used to introduce exchange rate dynamics - the Dornbusch (1976) seminal paper along with phase diagram - is not well-suited for undergraduate students as most of them do not have yet a background on dynamic macroeconomic analysis. This paper attempts to provide a graphical device – a panel IS*-LM* diagram – which can be used to teach intermediate macroeconomics students about Dornbusch’s idea of exchange rate dynamics. In addition, it also attempts to bridge the gap between undergraduate teaching and graduate teaching of exchange rate dynamics by showing the correspondence between the economy’s adjustment path in the IS*-LM* diagram and that in the phase diagram.

Suggested Citation

  • Fidelina B. Natividad-Carlos, 2014. "Exchange-Rate Overshooting: An Analysis for Intermediate Macro," UP School of Economics Discussion Papers 201414, University of the Philippines School of Economics.
    • Handle: RePEc:phs:dpaper:201414
    as

    Download full text from publisher

    File URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/1468
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, April.
    2. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    3. John Harvey, 2007. "Teaching Post Keynesian exchange rate theory," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 30(2), pages 147-168.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ethan Ilzetzki & Carmen M. Reinhart & Kenneth S. Rogoff, 2020. "Will the Secular Decline in Exchange Rate and Inflation Volatility Survive COVID-19?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 51(3 (Fall)), pages 279-332.
    2. Paul De Grauwe & Marianna Grimaldi, 2004. "Bubbles and Crashes in a Behavioural Finance Model," CESifo Working Paper Series 1194, CESifo.
    3. John Y. Campbell & Luis M. Viceira & Joshua S. White, 2003. "Foreign Currency for Long-Term Investors," Economic Journal, Royal Economic Society, vol. 113(486), pages 1-25, March.
    4. Scholl, Almuth & Uhlig, Harald, 2008. "New evidence on the puzzles: Results from agnostic identification on monetary policy and exchange rates," Journal of International Economics, Elsevier, vol. 76(1), pages 1-13, September.
    5. Olivier Blanchard, 2000. "What Do We Know about Macroeconomics that Fisher and Wicksell Did Not?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(4), pages 1375-1409.
    6. Taylor Mark P. & Sarno Lucio, 2001. "Real Exchange Rate Dynamics in Transition Economies: A Nonlinear Analysis," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 5(3), pages 1-26, October.
    7. Paul R. Bergin & Robert C. Feenstra, 2017. "Pricing-to-Market, Staggered Contracts, and Real Exchange Rate Persistence," World Scientific Book Chapters, in: International Macroeconomic Interdependence, chapter 6, pages 155-185, World Scientific Publishing Co. Pte. Ltd..
    8. Charles Yuji Horioka & Nicholas Ford, 2017. "The Solution to the Feldstein-Horioka Puzzle," ISER Discussion Paper 1016, Institute of Social and Economic Research, Osaka University.
    9. Dumrongrittikul, Taya & Anderson, Heather M., 2016. "How do shocks to domestic factors affect real exchange rates of Asian developing countries?," Journal of Development Economics, Elsevier, vol. 119(C), pages 67-85.
    10. Maurice Obstfeld & Kenneth S. Rogoff, 2000. "Perspectives on OECD economic integration : implications for U.S. current account adjustment," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 169-208.
    11. Anella Munro, 2016. "Bond premia, monetary policy and exchange rate dynamics," Reserve Bank of New Zealand Discussion Paper Series DP2016/11, Reserve Bank of New Zealand.
    12. Eijffinger, S.C.W. & Goderis, B., 2002. "Financial crises, monetary policy and financial fragility : A second-generation model of currency crises," Other publications TiSEM d2ccad44-44f6-40d8-9be0-1, Tilburg University, School of Economics and Management.
    13. Ronald MacDonald & Jun Nagayasu, 2000. "The Long-Run Relationship Between Real Exchange Rates and Real Interest Rate Differentials: A Panel Study," IMF Staff Papers, Palgrave Macmillan, vol. 47(1), pages 1-5.
    14. Habib Ahmed & C. Paul Hallwood & Stephen M. Miller, 2006. "The Exchange Rate-Investment Nexus and Exchange Rate Instability: Another Reason for 'Fear of Floating'," Working papers 2006-15, University of Connecticut, Department of Economics, revised Jan 2009.
    15. Bresser-Pereira, Luiz Carlos & Feijó, Carmem & Araújo, Eliane Cristina de, 2022. "The determination of the exchange rate: a new-developmental approach," Textos para discussão 558, FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil).
    16. Sergio Da Silva, 2001. "Chaotic Exchange Rate Dynamics Redux," Open Economies Review, Springer, vol. 12(3), pages 281-304, July.
    17. Pedro Garcia Duarte, 2015. "From real business cycle and new Keynesian to DSGE Macroeconomics: facts and models in the emergence of a consensus," Working Papers, Department of Economics 2015_05, University of São Paulo (FEA-USP).
    18. Yin-Wong Cheung & Menzie D. Chinn & Antonio I. Garcia Pascual, 2003. "What Do We Know about Recent Exchange Rate Models? In-Sample Fit and Out-of-Sample Performance Evaluated," CESifo Working Paper Series 902, CESifo.
    19. Anna Larsson, 2004. "The Swedish real exchange rate under different currency regimes," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 140(4), pages 706-727, December.
    20. Kai-Li Wang & Christopher Fawson & Christopher B. Barrett & James B. McDonald, 2001. "A flexible parametric GARCH model with an application to exchange rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(4), pages 521-536.

    More about this item

    Keywords

    undergraduate teaching; graduate teaching; exchange rates; exchange rate dynamics; sticky prices; interest parity; open economy macroeconomics; fiscal policy; monetary policy;
    All these keywords.

    JEL classification:

    • A23 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Graduate
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:phs:dpaper:201414. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: RT Campos (email available below). General contact details of provider: https://edirc.repec.org/data/seupdph.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.