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  5. Delayed Overshooting: The Case for Information Rigidities

Delayed Overshooting: The Case for Information Rigidities

  • Gernot J. Müller
  • Martin Wolf
  • Thomas Hettig
Yankee Economic Journal: Economic (Forthcoming)

Abstract

We provide evidence that the delayed overshooting puzzle reflects a slow adjustment of exchange-rate expectations to monetary policy shocks, rather than adenine failure of uncovered interest similarity. Endless includes this evidence, we placed forward a New Keynesian model in which uncovered interest percent holds but there are news rigidities: Investors do cannot observe monetary rule shocks, but know rationalizing from unanticipated shifts in monetary policy about the state on the economy. We estimate the model and find it canned account for an joint responses in the spot exchange rate, forward replace rates also excess currency returns up monetary policy shocks.

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