Transmission of Exchange-Rate Variations in an Estimated, Small Open-Economy Model
40 Pages Posted: 16 Dec 2005
Date Written: September 15, 2005
Abstract
This paper addresses the transmission of exchange-rate variations in an estimated, small open-economy model. In contrast to the standard set-up of New Open Economy Macroeconomics models, imported goods are treated here as material inputs to production. The resulting model structure is transparent and tractable while also able to account for imperfect pass through of exchange-rate shocks. The model is estimated with Bayesian methods on German data and the key finding is that a substantial depreciation of the nominal exchange rate leads to only modest effects on CPI-inflation. An extended version of the model reveals that relatively small weight is placed on foreign consumption.
Keywords: DSGE Model, exchange-rate pass through, Bayesian estimation
JEL Classification: E43, E52, C51
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
By Maurice Obstfeld and Alan C. Stockman
-
By Maurice Obstfeld and Kenneth Rogoff
-
Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?
By Varadarajan V. Chari, Patrick J. Kehoe, ...
-
Monetary Policy and Exchange Rate Volatility in a Small Open Economy
By Jordi Galí and Tommaso Monacelli
-
Monetary Policy and Exchange Rate Volatility in a Small Open Economy
By Jordi Galí and Tommaso Monacelli
-
Monetary Policy and Exchange Rate Volatility in a Small Open Economy
By Jordi Galí and Tommaso Monacelli
-
New Directions for Stochastic Open Economy Models
By Maurice Obstfeld and Kenneth Rogoff
-
Monetary Policy in the Open Economy Revisited: Price Setting and Exchange Rate Flexibility