Expectations and exchange rate dynamics: A state-dependent pricing approach
This paper presents a two-country DSGE model with state-dependent pricing as in Dotsey et al. [Dotsey, M., King, R.G., and Wolman, A.L., 1999. State-dependent pricing and the general equilibrium dynamics of money and output. Quarterly Journal of Economics 114, 655-690] and variable demand elasticity as in Kimball [Kimball, M.S., 1995. The quantitative analytics of the basis neomonetarist model. Journal of Money, Credit, and Banking 27, 1241-1277]. Following a domestic monetary expansion, the model predicts: (i) positive hump-shaped responses of domestic output and consumption, (ii) positive spillover effects on foreign output and consumption, (iii) a high international output correlation relative to consumption correlation, (iv) a delayed increase in domestic and foreign inflation, (v) a delayed nominal exchange rate overshooting, (vi) a deterioration in the terms of trade, and (vii) a J-curve in the trade balance. The model matches the impulse responses from an identified VAR more closely than an otherwise identical model with time-dependent pricing.
Year of publication: |
2009
|
---|---|
Authors: | Landry, Anthony |
Published in: |
Journal of International Economics. - Elsevier, ISSN 0022-1996. - Vol. 78.2009, 1, p. 60-71
|
Publisher: |
Elsevier |
Keywords: | State-dependent pricing Variable demand elasticity International business cycle transmission Exchange rate dynamics |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Capital-goods imports and US growth
Cavallo, Michele, (2018)
-
Charbonneau, Karyne B., (2018)
-
Accounting for real exchange rates using micro-data
Crucini, Mario J., (2017)
- More ...