How well can the new open economy macroeconomics explain the exchange rate and current account?
By: Paul R. Bergin.
Contributors: National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10356; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10356.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Foreign exchange rates -- Econometric models.; Balance of payments -- Econometric models.
Description: "This paper advances the new open economy macroeconomic (NOEM) literature in an empirical direction, estimating and testing a two-country model.  Fit to U.S and G-7 data, the model performs moderately well for the exchange rate and current account.  Results offer guidance for future theoretical work.  Parameter estimates lend support to some common assumptions in the theoretical literature, such as local currency pricing and risk sharing.  Estimates are found for key parameters commonly calibrated in the theoretical literature, such as the elasticity of substitution between home and foreign composite goods, and the response of a country risk premium to the net foreign asset position.  Results also indicate that deviations from interest rate parity are not closely related to monetary policy shocks, as recently hypothesized.  Further, results suggest that inserting explicit interest rate parity shocks into a NOEM model may be more helpful in explaining movements in the current account than the exchange rate"--National Bureau of Economic Research web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 1/18/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.