Journal article
Exchange Rate Bands with Price Inertia
The Economic journal (London), Vol.101(409), pp.1380-1399
11/01/1991
DOI: 10.2307/2234891
Abstract
A stochastic model of exchange rates where output and the real exchange rate are determined endogenously will provide a richer and more realistic framework for discussing policy issues than the stylized monetary model used by others. It is essentially because the evolution of economic fundamentals is independent of the behavior of the exchange rate itself that the monetary model yields explicit solutions. In the stochastic Dornbusch model under consideration, this is no longer true, but the analysis can nevertheless be conducted using the general properties of stochastic solutions. For a real exchange rate band, for example, it turns out that the real exchange rate follows an S-shaped curve inside the band, which can be sustained by infinitesimal intervention at the margin. However, the solution does not have the exponential form characteristic of the nominal rate in the monetary model. Two solutions are possible, one stable and one unstable.
Details
- Title: Subtitle
- Exchange Rate Bands with Price Inertia
- Creators
- Marcus Miller - Center for Economic and Policy ResearchPaul Weller - University of Iowa
- Resource Type
- Journal article
- Publication Details
- The Economic journal (London), Vol.101(409), pp.1380-1399
- DOI
- 10.2307/2234891
- ISSN
- 0013-0133
- eISSN
- 1468-0297
- Publisher
- Oxford University Press
- Language
- English
- Date published
- 11/01/1991
- Academic Unit
- Finance
- Record Identifier
- 9984963435402771
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