Sticky Prices and Alternative Monetary Feedback Rules: How Robust Is the Overshooting Phenomenon?
نویسندگان
چکیده
The present paper incorporates a mechanism of rules-based central-bank interventions into a Dornbusch-type framework. We show that the implied reactions of exchange rates and interest rate differentials in response to a monetary shock depend crucially on the particular monetary policy feedback rule. The Dornbusch case of positively correlated and overshooting nominal and real exchange rates as well as nominal and real interest rate differentials is only one of the possible scenarios of our model. Different scenarios imply zero and negative correlations and even multiple overshooting. [E58, F31, F41]
منابع مشابه
Monetary policy and exchange rate overshooting in Iran: A Vector Errors Correction (VEC) approach
Assumption of exchange rate overshooting has significant position in international macroeconomic discussion. This phenomenon is one of the abnormal behaviors of exchange rate that happen in short run. Dornbusch (1976) shows that because speed of equilibrium prices is slow relative to asset markets and commodity prices are sticky in the short run, However, over time, commodity prices will rise a...
متن کاملMonetary policy and economic fluctuations in a sticky-price model
This paper examines a simple monetary optimizing model with sticky-prices. Two types of monetary policy rules are considered: constant money growth rules and interest-rate feedback (Taylor-type) rules. In the case of constant money growth rules, we show the existence of limit cycles through the Hopf bifurcation theorem. On the other hand, in the case of the interest-rate feedback rules, we show...
متن کاملSimple and Robust Rules for Monetary Policy
This paper focuses on simple normative rules for monetary policy that central banks can use to guide their interest rate decisions. Such rules were first derived from research on empirical monetary models with rational expectations and sticky prices built in the 1970s and 1980s. During the past two decades substantial progress has been made in establishing that such rules are robust. They perfo...
متن کاملFirm-Specic Capital and Welfare
What are the consequences for monetary policy design implied by the fact that price setting and investment takes typically place simultaneously at the rm level? To address this question we analyze simple (constrained) optimal interest rate rules in the context of a dynamic New Keynesian model featuring rm-speci c capital accumulation as well as sticky prices and wages à la Calvo. We make the ...
متن کاملOptimal Monetary Policy in a Model with Recursive Preferences
This paper provides a simple and elegance approach for an empirical investigation of a model with Epstein-Zin (1989) preferences. The perturbation method implemented in Dynare is readily applicable for computation of equilibrium and welfare. A stylized new Keynesian economy with sticky prices is analyzed and optimal simple rules are accessed across various types of monetary policy rules.
متن کامل