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Exogenous shocks and exchange rate regimes

Chia, Wai-Mun, Cheng, Tianyin and Li, Mengling (2012) Exogenous shocks and exchange rate regimes. The World Economy, 35 (4). pp. 444-460. ISSN 0378-5920

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Abstract

Using a dynamic stochastic general equilibrium (DSGE) model with nominal price rigidity and imperfect competition, we examine the impact of terms-of-trade and foreign interest rate shocks on some key macroeconomic variables for a small open economy under different exchange rate regimes. Numerical solutions from the model are found consistent with empirical panel VAR results of 33 Asian economies for the period of 1980-2009. From both the theoretical model and empirical evidence, we find that (i) output responses to terms-of-trade and foreign interest rate shocks are smoother in floats, (ii) price responses to terms-of-trade shocks are smoother in floats than in pegs, while its responses to foreign interest shocks are more volatile in floats than in pegs, and (iii) the effects of terms-of-trade and foreign interest shocks are more prolonged under floats

Item Type: Article
Official URL: http://eu.wiley.com/WileyCDA/WileyTitle/productCd-...
Additional Information: © 2012 Blackwell
Library of Congress subject classification: H Social Sciences > HG Finance
Sets: Departments > Economics
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 25 Apr 2012 13:48
URL: http://eprints.lse.ac.uk/43338/

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