NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Carlos Alfredo Rodriguez

Universidad del CEMA
Av. Córdoba 637, (1054)
Buenos Aires, Argentina

E-Mail: car@cema.edu.ar

NBER Working Papers and Publications

1982Exchange Rate Dynamics and the Overshooting Hypothesis
with Jacob A. Frenkel: w0832
In this paper we analyze the determinants of the evolution of ex- change rates within the context of alternative models of exchange rate dynamics. We examine the overshooting hypothesis in models which emphasize differential speeds of adjustment in asset and goods markets as well as in models which emphasize portfolio balance considerations. We show that exchange rate overshooting is not an intrinsic characteristic of the foreign exchange market and that it depends on a set of specific assumptions. We also show that the overshooting is not a characteristic of the assumption of perfect foresight nor does it depend in general on the assumption that goods and asset markets clear at different speeds. As long as the speeds of adjustment in the various markets are less than infinite, the key fac...

Published: Frenkel, Jacob A. and Rodriguez, Carlos A. "Exchange Rate Dynamics and the Overshooting Hypothesis." International Monetary Fund Staff Papers, Vol. 29 , No. 1 (March, 1982), pp. 1-30.

 
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