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Title:Noise Trading and the Effects of Monetary Policy Shocks on Nominal and Real Exchange Rates PDF Logo
Authors:Pierdzioch, Christian
Issue Date:2003
Series/Report no.:Kieler Arbeitspapiere 1140
Abstract:A number of empirical studies have reported the result that exchange rates show a delayed overshooting in response to monetary policy shocks. This result is puzzling. Economic theory suggests that the overshooting should occur immediately after the shock, not with a delay. This paper uses a ?new open economy macroeconomics? model with pricing-to-market to analyze whether the assumption of noise trading in the foreign exchange market helps to resolve the delayed overshooting puzzle. The implications of noise trading for the effects of monetary policy shocks on the nominal and on the real exchange rate are analyzed.
Subjects:Monetary Policy
Noise trading
Exchange rate overshooting
JEL:F31
F32
F41
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des IfW
Kieler Arbeitspapiere, IfW

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