Delayed Overshooting: It's an 80s Puzzle

37 Pages Posted: 13 Sep 2014

See all articles by Seong-Hoon Kim

Seong-Hoon Kim

Yonsei University at Wonju

Seongman Moon

Chonbuk National University

Carlos Velasco

Universidad Carlos III de Madrid - Department of Economics

Date Written: September 5, 2014

Abstract

We re-investigate the delayed overshooting puzzle. We find that delayed overshooting is primarily a phenomenon of the 1980s when the Fed was under the chairmanship of Paul Volcker. Related findings are as follows: (1) Uncovered interest parity fails to hold during the Volcker era and tends to hold in the other periods considered. (2) US monetary policy shocks have substantial impacts on exchange rate variations but misleadingly appear to have small impacts when monetary policy regimes are pooled. In brief, we confirm Dornbusch’s overshooting hypothesis.

Keywords: delayed overshooting, UIP, Dornbusch overshooting hypothesis, Volcker, monetary policy regime

JEL Classification: F31, E52, E65

Suggested Citation

Kim, Seong-Hoon and Moon, Seongman and Velasco, Carlos, Delayed Overshooting: It's an 80s Puzzle (September 5, 2014). KIEP Research Paper No. Staff Papers 14-03. Available at SSRN: https://ssrn.com/abstract=2495190 or http://dx.doi.org/10.2139/ssrn.2495190

Seong-Hoon Kim (Contact Author)

Yonsei University at Wonju ( email )

Wonju
Korea, Republic of (South Korea)

Seongman Moon

Chonbuk National University ( email )

567, Baekje-daero
Duckjingu
Jeonju-si, Jeollabuk-do 51372
Korea, Republic of (South Korea)

Carlos Velasco

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34-91 6249646 (Phone)
+34-91 6249875 (Fax)

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