Dong, Xue; Minford, Patrick; Meenagh, David; Yang, Xiaoliang - 2023
small open economy model of the UK, and compare the results with those for the conventional rational expectations model … model helps to explain the hump-shaped dynamics of real exchange rate following monetary shocks, while the rational … expectations model cannot. Also, we find that the exchange rate channel in the bounded rationality enlarges the effects of foreign …