Exchange Rate Dynamics with Sticky Prices: the Deutsch Mark, 1974-1982

42 Pages Posted: 23 Apr 2004 Last revised: 4 Jul 2010

See all articles by Alberto Giovannini

Alberto Giovannini

Columbia University - Columbia Business School

Julio J. Rotemberg

Harvard University, Business, Government and the International Economy Unit (deceased); National Bureau of Economic Research (NBER) (deceased)

Date Written: February 1984

Abstract

This paper estimates simultaneously dynamic equations for the Deutsche Mark/Dollar exchange rate and the German wholesale price index, which emerge from a model in which German prices are sticky. This stickiness is due to price adjustment costs which take the form posited by Rotemberg(1982).The main results of the empirical analysis are two: First, the version of the model where prices are perfectly flexible is rejected. Second, real exchange rate variability is mostly accounted for by nominal exchange rate variability. We find substantial overshooting of the exchange rate to monetary innovations like those which appear to be typical in Germany.

Suggested Citation

Giovannini, Alberto and Rotemberg, Julio J., Exchange Rate Dynamics with Sticky Prices: the Deutsch Mark, 1974-1982 (February 1984). NBER Working Paper No. w1281. Available at SSRN: https://ssrn.com/abstract=321327

Alberto Giovannini

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Julio J. Rotemberg (Contact Author)

Harvard University, Business, Government and the International Economy Unit (deceased) ( email )

Cambridge, MA
United States
617-495-1015 (Phone)
617-496-5994 (Fax)

National Bureau of Economic Research (NBER) (deceased)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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