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Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?
Open accessAbstract
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.
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Cites
Discretion versus policy rules in practice
Taylor, J. B. (1993) · Carnegie-Rochester Conference Series on Public Policy · doi:10.1016/0167-2231(93)90009-l · Cited by 9,065
By Force of Habit: A Consumption‐Based Explanation of Aggregate Stock Market Behavior
Campbell, J. Y., & Cochrane, J. H. (1999) · Journal of Political Economy · doi:10.1086/250059 · Cited by 5,210
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Gali, J., & Monacelli, T. (2005) · Review of Economic Studies · doi:10.1111/j.1467-937x.2005.00349.x · Cited by 1,451
Fiscal Stimulus in a Monetary Union: Evidence from US Regions
Nakamura, E., & Steinsson, J. (2014) · American Economic Review · doi:10.1257/aer.104.3.753 · Cited by 911
Bayesian estimation of an open economy DSGE model with incomplete pass-through
Adolfson, M., Laséen, S., Lindé, J., & Villani, M. (2007) · Journal of International Economics · doi:10.1016/j.jinteco.2007.01.003 · Cited by 849
International Trade and Macroeconomic Dynamics with Heterogeneous Firms
Ghironi, F., & Melitz, M. J. (2005) · The Quarterly Journal of Economics · doi:10.1093/qje/120.3.865 · Cited by 587
The Cross Section of Foreign Currency Risk Premia and Consumption Growth Risk
Lustig, H., & Verdelhan, A. (2007) · American Economic Review · doi:10.1257/aer.97.1.89 · Cited by 527
Metadata
- Authors
- Chari, V. V., Kehoe, P. J., & McGrattan, E. R.
- Venue
- The Review of Economic Studies
- Publisher
- Oxford University Press (OUP)
- Published
- 2002-07
- Volume
- 69
- Issue
- 3
- Pages
- 533-563
- ISSN
- 0034-6527 (ISSN-L)
- 1467-937X
- OpenAlex
- W3124784092
- Cited by
- 1,142
- References
- 2
- FWCI
- 101.10
- Type
- journal article
- Language
- en
- Open access
- gold
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- Chari, V. V., Kehoe, P. J., & McGrattan, E. R. (2002). Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates? The Review of Economic Studies. https://doi.org/10.1111/1467-937x.00216
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
