Working Paper: NBER ID: w0625
Authors: Robert P. Flood
Abstract: The present paper is intended to accomplish two tasks. First, models predicting overshooting and magnification, respectively, will be checked for their consistency with two key empirical regularities: A. The observed pattern of price level vs. exchange-rate volatility. B. The observed pattern of spot exchange-rate vs. forward exchange-rate volatility. Second, a widely neglected reason for exchange-rate volatility, activist monetary policy, will be studied.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| sticky-price and flexible-price models (C54) | exchange-rate volatility (F31) |
| domestic share of goods in consumption (D12) | models' predictions consistency (C52) |
| activist monetary policy (E63) | exchange-rate volatility (F31) |
| monetary policy aims to stabilize interest rates while ignoring covariance with disturbances (E63) | underprediction of volatility (G17) |