Modeling Deviations from Purchasing Power Parity (PPP) / Joshua Aizenman.

Format:

Book

Author/Creator:

Aizenman, Joshua.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1066.

NBER working paper series no. w1066

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Modeling Deviations from Purchasing Power Parity

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1983.

Summary:

The volatility of the exchange rate under floating rates can be interpreted in terms of approaches that allow for short term price rigidity as well as in terms of models that consider the magnification effect of new information. This paper combines the two approaches into a unified framework,where the degree to which prices are rigid is determined endogenously. It is shown that the variance of percentage deviations from ppp has an upper bound,and that the relationship between the variance of deviations from ppp and the aggregate variability is not monotonic. Allowing for a short-run Phillips curve with optimal indexation, it is also demonstrated that a higher price flexibility will reduce deviations from ppp and output volatility.

Notes:

Print version record

1983.