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Article Dans Une Revue Journal of International Money and Finance Année : 2004

Overshooting and the exchange rate disconnect puzzle: a reappraisal

Jean-Olivier Hairault
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Lise Patureau
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Résumé

Transitions to floating exchange rate regimes have led to sharp increases in exchange rate volatilities with no corresponding changes in the distribution of macroeconomic fundamentals. In the spirit of Dornbusch (1976), we assess whether nominal exchange rate overshooting is responsible for this phenomenon. As long as uncovered interest rate parity holds, nominal exchange rate overshooting is linked to a persistent fall in the spread between domestic and foreign nominal interest rates. We thus develop a limited participation model in a small open economy setting. With small adjustment costs on money holdings, overshooting substantially contributes to the nominal exchange rate volatility. © 2004 Elsevier Ltd. All rights reserved.

Dates et versions

hal-02878003 , version 1 (22-06-2020)

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Jean-Olivier Hairault, Lise Patureau, Thepthida Sopraseuth. Overshooting and the exchange rate disconnect puzzle: a reappraisal. Journal of International Money and Finance, 2004, 23 (4), pp.615--643. ⟨10.1016/j.jimonfin.2004.03.007⟩. ⟨hal-02878003⟩

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