IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Endogenous Rigidities and Real Exchange Rates

Listed author(s):
  • Margarida Duarte
  • Michael Dotsey

A central feature of international business cycles is that fluctuations of real and nominal exchange rates are volatile and persistent. Recent two-country dynamic general equilibrium models have explored the implications for real exchange rate fluctuations from monetary shocks in the presence of nominal rigidities. Without substantial price-stickiness, these models cannot match the persistence of real exchange rates. Our paper builds a two-country model with nominal rigidities and incomplete asset markets. Deviations from purchasing power parity arise from the need to use local labor in order to make imported goods available for consumption and production. We consider an alternative view of real marginal cost, which comprises (local and imported) produced inputs and variable utilization of the capital stock. These features reduce the elasticity of marginal cost with respect to output, thus reducing the extent of price adjustments by firms in response to a monetary shock, and generate responses of output and consumption to shifts in monetary policy that persist beyond the period of (exogenously imposed) price stickiness. Finally, we consider general demand aggregators (allowing for kinked demand functions). We explore the (quantitative) properties of our model for the volatility and persistence of nominal and real exchange rates

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 804.

in new window

Date of creation: 2004
Handle: RePEc:red:sed004:804
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:red:sed004:804. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.