|
|
|
|
Title: |
Exchange-Rate Sensitive Demand for Money and Overshooting |
| Author: |
Akiba, Hiroya |
| Author
Affiliation: |
Waseda U |
| Source: |
International Economic Journal, Autumn 1996, v. 10, no. 3, pp. 119-129 |
|
Publication Date: |
Autumn 1996 |
|
Abstract: |
This paper investigates the effects of the
rebalancing effect (the exchange rate) sensitivity of the demand for
money) in the context of the Dornbusch (1976) model of exchange rate
overshooting. The model utilized hare is that of Frenkel and Rodoriguez
(1982) to accommodate different degrees of capital mobility. The model
also emphasizes gradual adjustment of commodity prices so that
purchasing power parity holds as a long-run proposition. It will be
demonstrated that the rebalancing effect unambiguously reduces exchange
rate volatility regardless of the degree of capital mobility, by
reducing the extent of exchange rate overshooting. |
|
