Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?

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ID: 296897
2002
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Abstract
The central puzzle in international business cycles is that fluctuations in real exchange rates are volatile and persistent. We quantify the popular story for real exchange rate fluctuations: they are generated by monetary shocks interacting with sticky goods prices. If prices are held fixed for at least one year, risk aversion is high, and preferences are separable in leisure, then real exchange rates generated by the model are as volatile as in the data and quite persistent, but less so than in the data. The main discrepancy between the model and the data, the consumption—real exchange rate anomaly, is that the model generates a high correlation between real exchange rates and the ratio of consumption across countries, while the data show no clear pattern between these variables.
Reference Key
openalex_W3124784092 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
Journal The Review of Economic Studies
Year 2002
DOI
10.1111/1467-937x.00216
URL
https://doi.org/10.1111/1467-937x.00216
Keywords Keywords not found

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