activist monetary policy imperfect capital mobility and the overshooting hypothesis abstract the hypothesis of exchange rate overshooting is investigated in the context of a model that incorporates activist monetary policy variable output imperfect capital mobility and slow price adjustment monetary policy which accommodates prices and or interest rates is shown to increase the probability of undershooting using constrained maximum likelihood methods the model is estimated for germany and japan since the advent of generalized floating in 1973 based on the estimated parameter values the mark exhibits overshooting while the yen is characterized by undershooting the constraints implied by the model cannot be rejected at standard significance levels for either country

the asset market model of the balance of payments and the exchange rate a survey of empirical evidence abstract the purpose of this survey is to assemble and evaluate empirical evidence on the asset market model of the balance of payments and the exchange rate in section i the distinctive features of asset market models are compared with earlier keynesian models particular attention is directed to the assumptions and predictions of the monetary model which is a special and well known case of more general asset market models and thereby serves as a useful benchmark for discussion in sections ii and iii the empirical evidence under fixed and flexible exchange rates is evaluated the paper is concluded in section iv with an assessment of our current state of knowledge

exchange rate overshooting the trade balance and rational expectations abstract this paper presents a model of exchange rate determination characterized by imperfect asset substitutability between domestic and foreign bonds sticky goods market prices and rational expectations the model is used to analyze the response of the exchange rate to a step change in relative money supplies the assumption of imperfect asset substitutability permits introduction into the analysis of trade flows which respond to relative price changes these flows create non monotonic exchange rate adjustments to long run equilibrium these non monotonic adjustments are consistent with rationality and may lead to short run undershooting or overshooting

endogenous risk in a portfolio balance rational expectations model of the deutschemark dollar rate abstract a portfolio balance model of the dm s rate under rational expectations is specified in which systematic risk induced deviations from uncovered interest parity are allowed this leads to a reduced from containing a potentially time varying risk premium which we approximate and estimate using an arch in mean approach the maximum likelihood estimator and a lagrande multiplier test for arch in mean are developed the estimation results indicate a small but non negligible time varying risk premium

relative price changes and exchange rate determination with slow price adjustment an empirical analysis the general purpose of this paper is to analyze empirically sectoral price adjustment in the exchange rate adjustment process relative price changes may occur within a sector between countries and within a country between sectors our main objective is to test the hypothesis that both kinds of relative price changes occur in the adjustment process to disturbances in money demand and supply in particular we expect that the relative prices among goods of different tradedness ranging from perfectly traded to non traded goods are affected by such disturbances our second objective is to test empirically whether the nature of exchange rate adjustment is affected by the average speed of sectoral price adjustment towards the law of one price and whether the exchange rate overshoots purchasing power parity after monetary disturbances we build on a model developed by dornbusch 6 and extended by mussa 17 they argue that the exchange rate may overshoot its purchasing power parity level after monetary disturbances as a result of slow price adjustment in the market for domestically produced goods the price of imported goods follows the law of one price we modify the dornbusch mussa model to distinguish between domestically produced goods for which the law of one price may hold to different degrees relative price changes in the adjustment process to monetary disturbances have gained

the relationship between bilateral and multilateral models of exchange rates abstract bilateral specifications of exchange rate models are expedient and widely used but their appropriateness in a multilateral world has not been examined formally this paper demonstrates that bilateral specifications are appropriate if i cross exchange rates are consistent ii multilateral weights are symmetric iii exchange rates are linear functions of domestic and foreign variables and iv coefficients on corresponding domestic and foreign variables are equal but opposite in sign conditions i iii and iv are common assumptions and evidence suggests that condition ii is met in approximate terms among most of the g 7 countries with the exceptions involving canada and japan

some evidence in favor of a monetary rational expectations exchange rate model with imperfect capital substitutability the authors develop and test a monetary rational expectations model of the swiss u s exchange rate two salient features of the model are the assumption that domestic and foreign currency denominated assets are imperfect substitues and that purchasing power parity need not hold the authors fail to reject overidentifying restrictions imposed on the model by the rational expectations hypothesis their point estimates especially for the income elasticity of the demand for money are plausible finally the model outperforms the random walk model established as a benchmark by r a meese and k s rogoff 1983 copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

exchange rate dynamics an empirical investigation this paper estimates a reduced form exchange rate equation whose estimates are used to address questions on exchange rate overshooting intermediate run exchange rate dynamics and long run proportionality relationships between relative money supplies and exchange rates based on swiss u s data from the period 1973 79 the major findings are that following a monetary shock there is short run exchange rate overshooting by a factor of about two and that subsequent exchange rate adjustments to a new long run equilibrium take longer than 2 years and exhibit nonmonotonic patterns

the canadian us dollar exchange rate a test of alternative models for the seventies abstract three basic models of bilateral exchange rate determination are evaluated on the basis of the canadian experience in the 1970s we examine wealth effects and incorporate consistent expectations in the traditional models based on reduced form equations empirical results reject a simple monetary approach and the stickly price asset market model but concur with a version of the stock flow model of exchange rate determination

the reaction of spot and forward rates to new information abstract this paper examines the impact of new information on the term structure of exchange rates in particular the response of spot and forward exchange rates to anticipated and unanticipated weekly u s and canadian money growth announcements and the speed of adjustment of the foreign exchange market to these announcements are investigated the results indicate that the unanticipated component of the announced changes in the u s money supply has an immediate negative effect on the foreign value of the u s dollar this is entirely consistent with the assetmarket theory of exchange rate determination that postulates that exchange rates immediately adjust to reflect new information the response of the forward market however appears to be weaker lending support to the overshooting hypothesis

whence exchange rate overshooting money stock or flow abstract money stock innovations have two principal impact effects on the exchange rate one is the direct effect as captured by the overshooting hypothesis the second is the result of the change in money growth rate expectations induced by the stock innovation simulations using a stylized monetary process verify that the front end loading of the growth rate effect is potentially much more important that the direct effect additional simulations using a calibrated monetary process demonstrate that growth rate effects are on average about twice the magnitude of stock innovation effects

unstable money demand and the monetary model of the exchange rate in this paper the authors investigate the importance for the monetary model of exchange rate determination of j frankel 1979 of allowing unrestricted dynamics and of accounting for shifts in the demand for money due to financial innovation based on estimation and simulation results for the canada u s bilateral exchange rate over the 1970 85 period the aut hors find strong evidence in favor of a generalized approach to dynamic specification but find that the shif t adjustment of official money supply data has only minor implications for the empirical results moreover neither modification is sufficient to generate a monetary model that is well supported by the data

exchange rate overshooting in turkey abstract exchange rate overshooting is said to be a short run phenomenon however when a currency like turkish lira depreciates from 13 to almost 400 000 lira per dollar over three decades one wonders whether it has overshot its long run value as well in this paper we employ a relatively new method of error correction modeling to show how one could test for overshooting in the short run as well as in the long run

the monetary approach to the exchange rate revisited 1984 the monetary approach to the exchange rate revisited applied economics vol 16 no 5 pp 771 782

on the effects of sterilized intervention an analysis of weekly data abstract as the recent empirical studies surveyed here illustrate it is very difficult to demonstrate that the exchange rate risk premium depends through a portfolio balance channel on the currency composition of outside assets the existence of a portfolio balance effect is a necessary condition for sterilized intervention to be a genuinely independent tool of monetary policy this paper studies u s canadian data and attempts to improve on earlier studies by using higher frequency weekly data and by implementing an appropriate instrumental variables technique 2s2sls however we still fail to detect evidence of a portfolio balance effect

expectations and exchange rate dynamics after a decade of floating abstract dornbusch s model of expectations and exchange rate dynamics has been a theoretical success and an empirical failure the premise underlying this paper is that the price and exchange rate dynamics inherent in his model cannot be captured by single equation methods to capture these dynamics we estimate dornbusch s model using constrained maximum likelihood methods which incorporate cross equation restrictions derived from the structural equations and assumption of rational expectations our central result is that the estimation of dornbusch s model is much more successful than single equation methods have led us to believe

an empirical investigation into the causes of failure of the monetary model of the exchange rate the purpose of this paper is to attempt to provide measures of the relative importance of the principal causes of the failure of the monetary model of the exchange rate secondly the random walk hypothesis for the exchange rate is tested the methodology employed is new and has wide application elsewhere it involves explicitly modelling the misspecification by time series techniques the results confirm the importance of the breakdown of the ppp assumption but they also show that misspecification of the money market is equally important the results further show that lagged information can also improve upon the random walk model of the exchange rate

cointegration and exchange rate dynamics abstract we utilize systems methods of estimation which impose the unit root structure to estimate both the long run equilibrium relationship the cointegrating vector and the short run dynamics of an open economy macroeconomic model in which the exchange rate and the domestic price level are endogenously determined for the united states the model is estimated over the flexible exchange rate period and over two sub periods chosen by structural change tests on the exchange rate both rational and theories consistent expectations are utilized the models with theories consistent expectations outperform those with rational expectations

negotiations in multi issue committees abstract we propose a non cooperative bargaining approach to the problem of collective decision making in committees by modelling this process as a sequential bargaining game the main objective of the paper is to discuss the formation of the agenda in multi issue committees and its relation to the importance of the issues we start by asserting that in the case of a single issue the set of all equilibrium outcomes of our game coincides with the set of coalitional stable outcomes we then consider multi issue committees to discuss the problem of forming agendas we argue that from the point of view of efficiency and stability the most important issues should be put first on the agenda we conclude with a sufficient condition on players preferences which guarantees the efficiency and stability of the bargaining outcomes for every possible agenda

exchange rate dynamics with wealth effects some theoretical ambiguities abstract this paper helps fill in a remaining gap in the exchange rate dynamics literature the role of wealth and relative price effects the analysis differs from dornbusch 1976 in the inclusion of wealth effects it differs from engel and flood forthcoming in the inclusion of relative price effects in the savings function the basic result of the paper is that when relative price effects dominate wealth effects exchange rate undershooting occurs but when wealth effects dominate overshooting may occur

exchange rate dynamics abstract dornbusch and stock flow models are tested using time series data on the swiss u s exchange rate efficient estimates of the models are derived and the overidentifying restrictions tested in each case the restrictions implied by the dornbusch model are rejected but those of the stock flow model are not purchasing power parity in the long run is a feature of the stock flow model

is it signalling exchange intervention and the dollar deutschemark rate abstract the portfolio balance channel for sterilised intervention is tested by examining the effects of changes in relative asset supplies on the dollar deutschemark rate during the 1980s in contrast to previous studies we control for any signalling effects of central bank intervention and find a weak but statistically significant portfolio balance influence on the exchange rate