Resource title

Exchange Rate Expectations Redux and Monetary Policy

Resource image

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Resource description

This paper uses a dynamic general equilibrium optimizing two-country model to analyze how the formation of exchange rate expectations shapes the effects of monetary policy shocks in open economies. The model implies that the short-run output effects of permanent monetary policy shocks diminish if 'noise traders' in the foreign exchange market form regressive exchange rate expectations. If the influence of these noise traders is strong enough, a permanent expansionary monetary policy shock can result in a temporary decline of the output in the country in which it takes place. The output effects of temporary monetary policy shocks are magnified when noise traders form regressive exchange rate expectations.

Resource author

Christian Pierdzioch

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/17776

Resource license

Adapt according to the presented license agreement and reference the original author.