On Interpreting the Random Walk Behavior of Nominal and Real Exchange Rates

22 Pages Posted: 15 Feb 2006

See all articles by Charles L Adams

Charles L Adams

affiliation not provided to SSRN

Bankim Chadha

affiliation not provided to SSRN

Date Written: January 1991

Abstract

The random walk property of exchange rates is frequently regarded as carrying strong implications for the kinds of shocks that have driven exchange rates and the models appropriate for analyzing their behavior. This paper conducts stochastic simulations of Dornbusch`s (1976) sticky-price monetary model, calibrated for representative parameter values for the United States. It shows that the model is capable of generating time series for both real and nominal exchange rates that are statistically indistinguishable from random walks when all shocks are nominal.

JEL Classification: 210, 431

Suggested Citation

Adams, Charles L and Chadha, Bankim, On Interpreting the Random Walk Behavior of Nominal and Real Exchange Rates (January 1991). IMF Working Paper No. 91/7, Available at SSRN: https://ssrn.com/abstract=884549

Charles L Adams (Contact Author)

affiliation not provided to SSRN

Bankim Chadha

affiliation not provided to SSRN

No Address Available

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