The Timing and Magnitude of Exchange Rate OvershootingNiklas Westelius, Mathias Hoffmann () and Jens Sondergaard No 418, Economics Working Paper Archive at Hunter College from Hunter College Department of Economics Abstract: Empirical evidence suggests that a monetary shock induces the exchange rate to over-shoot its long-run level. The estimated magnitude and timing of the overshooting, however, varies across studies. This paper generates delayed overshooting in a New Keynesian model of a small open economy by incorporating incomplete information about the true nature of the monetary shock. The framework allows for a sensitivity analysis of the overshooting result to underlying structural parameters. It is shown that policy objectives and measures of the economy?s sensitivity to exchange rate dynamic a¤ect the timing and magnitude of the overshooting in a predictable manner, suggesting a possible rationale for the cross-study variation of the delayed overshooting phenomenon. Keywords: Exchange rate overshooting; Partial information; Learning. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:htr:hcecon:418 Access Statistics for this paper More papers in Economics Working Paper Archive at Hunter College from Hunter College Department of Economics 695 Park Avenue, New York, NY 10065. Contact information at EDIRC. |
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