Persistent real exchange rates

Johri, Alok; Lahiri, Amartya

doi:10.1016/j.jinteco.2008.07.003

Cited by 35 publications

(16 citation statements)

References 38 publications

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“…Finally, besides the connection with Benigno (2004) and Engel (2012), our paper is related more broadly to the literature that uses dynamic sticky-price models to study the persistence of real exchange rates, such as, among others, Bergin and Feenstra (2001), Kollmann (2001), Chari, Kehoe and McGrattan (2002), Steinsson (2008), Johri and Lahiri (2008), Martínez-García and Søndergaard (2013), and Iversen and Söderström (2014).…”

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confidence: 96%

Monetary Policy and Real Exchange Rate Dynamics in Sticky-Price Models

Carvalho¹,

Nechio²,

Yao³

2017

ERWP

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We study how real exchange rate dynamics are affected by monetary policy in dynamic, stochastic, general equilibrium, sticky-price models. Our analytical and quantitative results show that the source of interest rate persistence -policy inertia or persistent policy shocks -is key. In the presence of persistent monetary shocks, increasing policy inertia may decrease real exchange rate persistence, hampering the ability of sticky-price models to generate persistent real exchange rate deviations from parity. When we take the model to the data, the latter favors a policy rule with high shock persistence and low policy inertia. JEL classification codes: F3, F41, E0

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confidence: 96%

Monetary Policy and Real Exchange Rate Dynamics in Sticky-Price Models

Carvalho¹,

Nechio²,

Yao³

2017

ERWP

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“…As argued by Crucini et al (2010), it is inconsistent with direct estimates available in the literature. 32 Moreover, its implication that sectoral real exchange rates follow AR(1) processes is clearly rejected by the data (see Subsection 6.2).…”

Section: Discussionmentioning

confidence: 96%

“…Our paper is naturally related to the growing literature that focuses on the aggregate implications of heterogeneity in price setting. 3 It contributes to the body of work that uses dynamic sticky-price models to study the persistence of real exchange rates, such as Bergin and Feenstra (2001), Kollman (2001), Chari et al (2002), Benigno (2004), Steinsson (2008), Johri and Lahiri (2008), and Martinez-Garcia and Søndergaard (2008). There is also a connection between the results from our multi-sector model, and the …ndings of the literature on cross-sectional aggregation of time-series processes (e.g.…”

Section: Introductionmentioning

confidence: 99%

The Wage Premium Puzzle and the Quality of Human Capital

Marquis

Trehan

Tantivong³

2011

ERWP

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We study the purchasing power parity (PPP) puzzle in a multi-sector, two-country, stickyprice model. Across sectors, …rms di¤er in the extent of price stickiness, in accordance with recent microeconomic evidence on price setting in various countries. Combined with local currency pricing, this leads sectoral real exchange rates to have heterogeneous dynamics. We show analytically that in this economy, deviations of the real exchange rate from PPP are more volatile and persistent than in a counterfactual one-sector world economy that features the same average frequency of price changes, and is otherwise identical to the multi-sector world economy. When simulated with a sectoral distribution of price stickiness that matches the microeconomic evidence for the U.S. economy, the model produces a half-life of deviations from PPP of 39 months. In contrast, the half-life of such deviations in the counterfactual one-sector economy is only slightly above one year. As a by-product, our model provides a decomposition of this di¤erence in persistence that allows a structural interpretation of the di¤erent approaches found in the empirical literature on aggregation and the real exchange rate. In particular, we reconcile the apparently con ‡icting …ndings that gave rise to the "PPP Strikes Back debate"(Imbs et al. 2005a,b and Chen and Engel 2005).

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“…where " M G is between the estimated persistence of the aggregate real exchange rate, 30 and the persistence of the MG-based real exchange rate.…”

Section: Business Cycle Statisticsmentioning

confidence: 99%

Aggregation and the PPP Puzzle in a Sticky-Price Model

Carvalho

Nechio

2008

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe study the purchasing power parity (PPP) puzzle in a multisector, two-country, sticky-price model. Firms' price stickiness differs across sectors, in accordance with recent microeconomic evidence on price setting in various countries. Combined with local currency pricing, these differences lead sectoral real exchange rates to exhibit heterogeneous dynamics. We show that in this economy, deviations of the real exchange rate from PPP are more volatile and persistent when compared with a counterfactual one-sector world economy that features the same average frequency of price changes and is otherwise identical to the multisector world economy. When simulated with a sectoral distribution of price stickiness that matches the microeconomic evidence for the U.S. economy, the model produces a half-life of deviations from PPP of forty-five months. In contrast, the half-life of such deviations in the counterfactual one-sector economy is only slightly above one year. As a by-product, our model provides a decomposition of this difference in persistence that allows a structural interpretation of the approaches found in the empirical literature on aggregation and the real exchange rate. In particular, we reconcile the apparently conflicting findings that gave rise to the "PPP strikes back" debate (Imbs et al. [2005a, b] and Chen and Engel [2005]).

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Persistent real exchange rates

Cited by 35 publications

References 38 publications

Monetary Policy and Real Exchange Rate Dynamics in Sticky-Price Models

Monetary Policy and Real Exchange Rate Dynamics in Sticky-Price Models

The Wage Premium Puzzle and the Quality of Human Capital

Aggregation and the PPP Puzzle in a Sticky-Price Model

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