Abstract

http://ssrn.com/abstract=882221
 
 

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The Exchange Rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities: A Quantitative Investigation


Robert Kollmann


ECARES, Université Libre de Bruxelles; University of Paris XII - Department of Economics; Centre for Economic Policy Research (CEPR)

January 1997

IMF Working Paper No. 97/7

Abstract:     
This paper studies dynamic-optimizing model of a semi-small open economy with sticky nominal prices and wages. The model exhibits exchange rate overshooting in response to money supply shocks. The predicted variability of nominal and real exchange rates is roughly consistent with that of G-7 effective exchange rates during the post-Bretton Woods era. The model predicts that a positive domestic money supply shock lowers the domestic nominal interest rate, that it raises output and that it leads to a nominal and real depreciation of the country`s currency. Increases in domestic labor productivity and in the world interest rate too are predicted to induce a nominal and real exchange rate depreciation.

Number of Pages in PDF File: 51

JEL Classification: F31, F32, E32

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Date posted: February 15, 2006  

Suggested Citation

Kollmann, Robert, The Exchange Rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities: A Quantitative Investigation (January 1997). IMF Working Paper No. 97/7. Available at SSRN: http://ssrn.com/abstract=882221

Contact Information

Robert Kollmann (Contact Author)
ECARES, Université Libre de Bruxelles ( email )
Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
University of Paris XII - Department of Economics ( email )
61 avenue du General de Gaulle
Creteil cedex, 94010
France
HOME PAGE: http://www.robertkollmann.com
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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