DELAYED OVERSHOOTING AND REAL EXCHANGE RATE PERSISTENCE IN AN IMPERFECT INFORMATION MODEL |
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| Authors: | Mathias Hoffmann Jens Søndergaard Niklas J Westelius |
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| Institution: | 1. Economic Research, Deutsche Bundesbank;2. Fixed Income Research, Global Markets EMEA, Nomura International plc;3. International Monetary Fund. |
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| Abstract: | Recent studies have pointed out that monetary shocks in sticky price models cannot generate real exchange rates that exhibit delayed overshooting and are highly persistent. This paper demonstrates that such exchange rate dynamics can be generated by incorporating incomplete information about the true nature of the monetary shock into a standard New Keynesian model of a small open economy. |
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