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| Author: | Chen, S. |
| Title: | Endogenous real exchange rate fluctuations in an optimizing open economy model |
| Journal: | Journal of International Money and Finance
2000 : APR, VOL. 19:2, p. 185-206 |
| Index terms: | FINANCE OPEN ECONOMY MODELS |
| Language: | eng |
| Abstract: | This paper constructs a simple intertemporal model of a small open economy inhabited by forward looking agents, in which endogenous fluctuations in the real exchange rate can arise in equilibrium, i.e. fluctuations that are not linked to movements in economic fundaments. The key condition for the main results is the assumption that the Marshall-Lerner condition does not hold (i.e. that the country's exports and imports are inelastic to its real exchange rate). |
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