NDLI: Information Frictions and Real Exchange Rate Dynamics

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Information Frictions and Real Exchange Rate Dynamics

Content Provider	Scilit
Author	Candian, Giacomo
Copyright Year	2017
Description	Journal: SSRN Electronic Journal Real exchange rates are highly volatile and persistent. I provide a novel structural explanation for these facts using a model with dispersed information among firms. When producers face strategic complementarities in price-setting, uncertainty about competitors’ beliefs results in sluggish price adjustment that can generate large and long-lived real exchange rate movements. I estimate the model using data from the US and Euro Area, and show that it successfully explains the unconditional volatility and persistence of the real exchange rate. The model also accounts for the persistent and hump-shaped real exchange rate behavior conditional on monetary disturbances documented by a structural VAR. About 50% of this persistence is due to the inertial dynamics of higher-order beliefs.
Related Links	http://ecomod.net/system/files/Candian_JMP_latest.pdf https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=2897629
ISSN	10914358
e-ISSN	15565068
DOI	10.2139/ssrn.2897629
Journal	SSRN Electronic Journal
Language	English
Publisher	Elsevier BV
Publisher Date	2017-01-10
Access Restriction	Open
Subject Keyword	Journal: SSRN Electronic Journal History and Philosophy of Science Real Exchange Rate
Content Type	Text
Resource Type	Article
Subject	Public Health, Environmental and Occupational Health Psychiatry and Mental Health

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