Working Paper: NBER ID: w5678
Authors: Fernando Alvarez; Andrew Atkeson
Abstract: We examine the impact of monetary injections in the Grossman-Weiss-Rotemberg Model and show that monetary shocks can lead to nominal exchange rates that are more volatile than inflation, money growth or interest rate differentials. Moreover, movements in real exchange rates following monetary injections can be persistent and nearly as large as movements in nominal exchange rates nominal exchange rates.
Keywords: monetary injections; exchange rates; Grossman-Weiss-Rotemberg model; international finance
JEL Codes: E52; F31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monetary shocks (E39) | Volatility of nominal exchange rates (F31) |
| Monetary injections (E52) | Volatility of nominal exchange rates (F31) |
| Monetary injections are persistent and low fraction of agents in asset market (E44) | High volatility of nominal exchange rates (F31) |
| Changes in nominal exchange rates (F31) | Changes in real exchange rates (F31) |
| Movements in real exchange rates (F31) | Persistence and substantiality (Y20) |