Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/17776
Authors: 
Pierdzioch, Christian
Year of Publication: 
2002
Series/Report no.: 
Kiel Working Paper 1109
Abstract: 
This paper uses a dynamic general equilibrium optimizing two-country model to analyze how the formation of exchange rate expectations shapes the effects of monetary policy shocks in open economies. The model implies that the short-run output effects of permanent monetary policy shocks diminish if 'noise traders' in the foreign exchange market form regressive exchange rate expectations. If the influence of these noise traders is strong enough, a permanent expansionary monetary policy shock can result in a temporary decline of the output in the country in which it takes place. The output effects of temporary monetary policy shocks are magnified when noise traders form regressive exchange rate expectations.
Subjects: 
Monetary policy
Exchange rate expectations
Noise trading
JEL: 
F31
F41
G15
Document Type: 
Working Paper

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