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The Micro-Macro Disconnect of Purchasing Power Parity

Bergin, Paul R. - 2010

This paper reconciles the persistence of aggregate real exchange rates with the faster adjustment of international … stylized facts regarding this puzzle. First, adjustment to purchasing power parity deviations in aggregated data is not just a … slower version of adjustment to the law of one price in microeconomic data, as arbitrage occurs in different markets, in …

Persistent link: https://www.econbiz.de/10013149574

Monetary Shocks and Real Exchange Rates in Sticky Price Models of International Business Cycles

Chari, Varadarajan V.; Kehoe, Patrick J.; McGrattan, … - 2021

The data show large and persistent deviations of real exchange rates from purchasing power parity. Recent work has shown that to a large extent these movements are driven by deviations from the law of one price for traded goods. In the data, real and nominal exchange rates are about 6 times as...

Persistent link: https://www.econbiz.de/10013218518

Accounting for Persistence and Volatility of Good-Level Real Exchange Rates : The Role of Sticky Information

Crucini, Mario J.; Shintani, Mototsugu; Tsuruga, Takayuki - 2022

, empirical frequencies of micro price adjustment cannot replicate the time-series properties of the law-of-one-price deviations …. We extend their sticky price model by combining good specific price adjustment with information stickiness in the sense … cities within a country. Using a panel of U.S.-Canadian city pairs, we estimate a dynamic price adjustment process for each …

Persistent link: https://www.econbiz.de/10013324029

Optimal Exchange Rate Policy : The Influence of Price Setting and Asset Markets

Engel, Charles M. - 2021

This paper examines optimal exchange-rate policy in two-country sticky-price general equilibrium models in which households and firms optimize over an infinite horizon in an environment of uncertainty. The models are in the vein of the new open-economy macroeconomics' as exemplified by Obstfeld...

Persistent link: https://www.econbiz.de/10013218512

Expenditure Switching and Exchange Rate Policy

Engel, Charles M. - 2021

' currencies, nominal exchange rate flexibility cannot achieve any relative price adjustment. In that case nominal exchange rate …

Persistent link: https://www.econbiz.de/10013246362

Do Sticky Prices Increase Real Exchange Rate Volatility at the Sector Level?

Crucini, Mario J.; Shintani, Mototsugu; Tsuruga, Takayuki - 2021

theory predicts that the real exchange rate volatility curve is a U-shaped function of the degree of price stickiness. Using …

Persistent link: https://www.econbiz.de/10013311936

The Logic of Currency Crises

Obstfeld, Maurice - 2021

Once one recognizes that governments borrow international reserves and exercise other policy options to defend fixed exchange rates during currency crises, the question arises: What factors determine a government's decision to abandon a currency peg or hang on? In a setting of purposeful action...

Persistent link: https://www.econbiz.de/10013213429

Contagious Currency Crises

Eichengreen, Barry; Rose, Andrew Kenan; Wyplosz, Charles - 2010

This paper is concerned with the fact that the incidence of speculative attacks tends to be temporally correlated; that is, currency crises appear to pass contagiously from one country to another. The paper provides a survey of the theoretical literature, and analyzes the contagious nature of...

Persistent link: https://www.econbiz.de/10014076135

The Real Exchange Rate, Mercantilism and the Learning by Doing Externality

Aizenman, Joshua - 2008

This paper examines the degree to which the learning by doing externality [LBD] calls for an undervalued exchange rate, a policy suggested by recent empirical studies which concluded that mildly undervalued real exchange rate may enhance growth. We obtain mixed results. For an economy where LBD...

Persistent link: https://www.econbiz.de/10012772382

Monetary Policy in the Open Economy Revisited : Price Setting and Exchange Rate Flexibility

Devereux, Michael B.; Engel, Charles M. - 2021

flexibility is desirable in the presence of real country-specific shocks that require adjustment in relative prices. However, in …

Persistent link: https://www.econbiz.de/10013223870

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