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MONEY, CAPITAL, AND EXCHANGE RATE FLUCTUATIONS *
Author(s) -
GomisPorqueras Pere,
Kam Timothy,
Lee Junsang
Publication year - 2013
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2012.00735.x
Subject(s) - economics , exchange rate , monetary economics , business cycle , capital (architecture) , monetary policy , capital flows , econometrics , macroeconomics , microeconomics , archaeology , history , profit (economics)
We explore how the informational frictions underlying monetary exchange affect international exchange rate dynamics. Our perfectly flexible price model is capable of producing endogenously rigid international relative prices in response to technology and monetary shocks. The model is capable of accounting for the empirical regularities that the real and nominal exchange rates are more volatile than U.S. output, and that the two are positively and perfectly correlated. The model is also consistent with other standard real business cycle facts for the United States.