DP1131 Exchange Rate Dynamics Redux
|Author(s):||Maurice Obstfeld, Kenneth Rogoff|
|Publication Date:||February 1995|
|Keyword(s):||Current Account, Exchange Rate Dynamics, Sticky-Price Macroeconomic Models|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=1131|
We develop an analytically tractable two-country model that marries a full account of global macroeconomic dynamics to a supply framework based on monopolistic competition and sticky nominal prices. The model offers simple and intuitive predictions about exchange rates and current accounts that sometimes differ sharply from those of either modern flexible-price intertemporal models, or traditional sticky-price Keynesian models. Our analysis leads to a novel perspective on the international welfare spillovers due to monetary and fiscal policies.