Abstract

http://ssrn.com/abstract=594901
 
 

References (32)



 
 

Citations (3)



 


 



A Neo-Classical Explanation of Nominal Exchange Rate Volatility


Michael Moore


University of Warwick - Warwick Business School

Maurice J. Roche


National University of Ireland, Maynooth (NUI Maynooth) - Department of Economics

September 2004



Abstract:     
The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. The model is simulated using the artificial economy methodology. It successfully explains the high volatility of nominal exchange rates without recourse to sticky prices and overshooting. Nominal exchange rates are volatile because of real exchange rate variability. This, in turn, arises because the marginal rate of substitution between home and foreign goods is volatile because of the habit persistence externality.

Number of Pages in PDF File: 32

Keywords: Artificial economy, nominal exchange rates, habit persistence

JEL Classification: F3, F4

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Date posted: September 24, 2004  

Suggested Citation

Moore, Michael and Roche, Maurice J., A Neo-Classical Explanation of Nominal Exchange Rate Volatility (September 2004). Available at SSRN: http://ssrn.com/abstract=594901 or http://dx.doi.org/10.2139/ssrn.594901

Contact Information

Michael John Moore (Contact Author)
University of Warwick - Warwick Business School ( email )
Coventry CV4 7AL
United Kingdom
Maurice J. Roche
National University of Ireland, Maynooth (NUI Maynooth) - Department of Economics ( email )
County Kildare
Ireland
+353 1 7083786 (Phone)
+353 1 7083934 (Fax)
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