Premium
DELAYED OVERSHOOTING AND REAL EXCHANGE RATE PERSISTENCE IN AN IMPERFECT INFORMATION MODEL
Author(s) -
Hoffmann Mathias,
Søndergaard Jens,
Westelius Niklas J.
Publication year - 2011
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.1467-9485.2011.00545.x
Subject(s) - economics , new keynesian economics , exchange rate , shock (circulatory) , keynesian economics , imperfect , perfect information , persistence (discontinuity) , open economy , econometrics , monetary policy , small open economy , monetary economics , macroeconomics , mathematical economics , medicine , linguistics , philosophy , geotechnical engineering , engineering
Recent studies have pointed out that monetary shocks in sticky price models cannot generate real exchange rates that exhibit delayed overshooting and are highly persistent. This paper demonstrates that such exchange rate dynamics can be generated by incorporating incomplete information about the true nature of the monetary shock into a standard New Keynesian model of a small open economy.