Exchange Rates, Expectations, and Monetary Policy: a NOEM Perspective
We use a dynamic general-equilibrium optimizing two-country model to analyze how the formation of exchange rate expectations shapes the effects of a monetary policy shock in an open economy. We also provide empirical evidence on how traders in foreign exchange markets form exchange rate expectations. Our model implies that the short-run output effect of a <i>permanent</i> monetary policy shock diminishes if "technical traders" form the type of regressive exchange rate expectations we find in our empirical analysis. If the influence of technical traders is strong enough, a permanent expansionary monetary policy shock can result in a temporary decline of the output in the country in which it takes place. The output effect of a <i>temporary</i> monetary policy shock is magnified when technical traders form regressive exchange rate expectations. Copyright © 2007 The Authors; Journal compilation © 2007 Blackwell Publishing Ltd.
Year of publication: |
2007
|
---|---|
Authors: | Pierdzioch, Christian ; Stadtmann, Georg |
Published in: |
Review of International Economics. - Wiley Blackwell, ISSN 0965-7576. - Vol. 15.2007, 2, p. 252-268
|
Publisher: |
Wiley Blackwell |
Saved in:
freely available
Saved in favorites
Similar items by person
-
New evidence of anti-herding of oil-price forecasters
Pierdzioch, Christian, (2010)
-
Pierdzioch, Christian, (2011)
-
DOES THE ECB HAVE A TIME‐INCONSISTENCY PROBLEM? A NOTE
Pierdzioch, Christian, (2011)
- More ...