English, Article, Journal or magazine article edition: The Exchange Rate-Investment Nexus and Exchange Rate Instability: Another Reason for ‘Fear of Floating’ Habib Ahmed; C. Paul Hallwood; Stephen M. Miller

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Bookmark: http://trove.nla.gov.au/version/183465
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • The Exchange Rate-Investment Nexus and Exchange Rate Instability: Another Reason for ‘Fear of Floating’
Author
  • Habib Ahmed
  • C. Paul Hallwood
  • Stephen M. Miller
Physical Description
  • preprint
Notes
  • We show that expansionary monetary policy causes exchange rate overshooting due to the secondary repercussion comes through the reaction of firms to changed asset prices and the firms’ decisions to invest in real capital. This overshooting effect adds to any overshooting that occurs through the traditional Dornbusch (1976) channel, since our model with its market clearing in the short run excludes any Dornbusch overshooting. The model sheds further light on the volatility of real and nominal exchange rates. It suggests that changes in corporate sector profitability may affect exchange rates through international portfolio diversification in corporate securities, and it offers an additional reason for ‘fear of floating’.
  • exchange rates, open economy macroeconomics, monetary policy, exchange rate overshooting
  • RePEc:nlv:wpaper:0918
Language
  • English
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