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Exchange rate dynamics in economies with portfolio rigidities

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  • de Blas, Beatriz

Abstract

This paper studies the international transmission of productivity and monetary shocks in a general equilibrium two-country monetary model with portfolio rigidities and distribution costs in trade. The model features two types of transport costs (iceberg costs and distribution costs in terms of nontradables) and incomplete markets. The specification employed here is able to generate the domestic liquidity effect, increase in the foreign-domestic interest rate differential, and the nominal depreciation after a monetary injection. Quantitatively, the model with distribution costs as in Burstein, Neves and Rebelo (2003) performs better matching some business cycle moments, but fails to generate the high volatility of exchange rates observed in the data.

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  • de Blas, Beatriz, 2010. "Exchange rate dynamics in economies with portfolio rigidities," International Review of Economics & Finance, Elsevier, vol. 19(3), pages 366-382, June.
    • Handle: RePEc:eee:reveco:v:19:y:2010:i:3:p:366-382
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    Cited by:

    1. Kodongo, Odongo & Ojah, Kalu, 2012. "The dynamic relation between foreign exchange rates and international portfolio flows: Evidence from Africa's capital markets," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 71-87.
    2. Kitano, Shigeto & Takaku, Kenya, 2013. "An optimal government spending reversal rule in a small open economy," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 374-382.
    3. de Blas, Beatriz, 2008. "International Transmission of Shocks under Financial Frictions: Some Implications for International Business Cycle Comovement," Working Papers in Economic Theory 2008/01, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).

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    More about this item

    Keywords

    Flexible prices Distribution costs Tradables and nontradables Limited participation models Incomplete markets;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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