Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/305404 
Year of Publication: 
2024
Series/Report no.: 
NBB Working Paper No. 455
Publisher: 
National Bank of Belgium, Brussels
Abstract: 
We solve a canonical, estimated, medium-sized, open-economy New Keynesian model, cast it into a small-scale population vector autoregression, and assess whether best-practice structural identifications detect textbook "overshooting" after a monetary policy hike-i.e., an instant real appreciation that monotonically reverts. Our results include "delayed overshooting," "exchange rate puzzles," "forward discount puzzles," and model-consistent overshooting. Identifications that regularly indicate open-economy anomalies in empirics likewise produce them in our controlled setup. Vice versa, identifications that prompt theory-conform conclusions in actual data do so in our experimental data. We infer that less empirical evidence may contradict canonical international macro theory than previously understood.
Subjects: 
New open economy macroeconomics
population vector autoregression
invertibility
structural identification
exchange rate
overshooting
JEL: 
C32
E32
E52
F41
F42
Document Type: 
Working Paper

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