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Price, output, and exchange rate movements in the open economy

Publication ,  Journal Article
Kimbrough, KP
Published in: Journal of Monetary Economics
January 1, 1983

Since the advent of managed floating it has come to be accepted as a stylized fact that short-run deviations from purchasing power parity are both substantial and persistent. Two explanations of these deviations have been advanced in the literature. One emphasizes the role of changes in non-traded goods prices while the other views deviations from purchasing power parity as being due to sticky goods prices and slow adjustment of goods markets. This paper presents yet a third possible explanation of deviations from purchasing power parity - they may be necessary in order to facilitate the relative price changes that are required to maintain equilibrium in the face of unanticipated shocks. In addition, the issue of exchange rate overshooting is addressed. Whereas the sticky price models view exchange rate overshooting and exchange rate volatility as symptoms of some fundamental disequilibrium, the perspective taken here is that these events are, in principle, compatible with a world in which all markets clear continuously. © 1983.

Duke Scholars

Published In

Journal of Monetary Economics

DOI

ISSN

0304-3932

Publication Date

January 1, 1983

Volume

11

Issue

1

Start / End Page

25 / 44

Related Subject Headings

  • Economics
  • 3803 Economic theory
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1403 Econometrics
  • 1402 Applied Economics
  • 1401 Economic Theory
 

Citation

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Kimbrough, K. P. (1983). Price, output, and exchange rate movements in the open economy. Journal of Monetary Economics, 11(1), 25–44. https://doi.org/10.1016/0304-3932(83)90012-0
Kimbrough, K. P. “Price, output, and exchange rate movements in the open economy.” Journal of Monetary Economics 11, no. 1 (January 1, 1983): 25–44. https://doi.org/10.1016/0304-3932(83)90012-0.
Kimbrough KP. Price, output, and exchange rate movements in the open economy. Journal of Monetary Economics. 1983 Jan 1;11(1):25–44.
Kimbrough, K. P. “Price, output, and exchange rate movements in the open economy.” Journal of Monetary Economics, vol. 11, no. 1, Jan. 1983, pp. 25–44. Scopus, doi:10.1016/0304-3932(83)90012-0.
Kimbrough KP. Price, output, and exchange rate movements in the open economy. Journal of Monetary Economics. 1983 Jan 1;11(1):25–44.
Journal cover image

Published In

Journal of Monetary Economics

DOI

ISSN

0304-3932

Publication Date

January 1, 1983

Volume

11

Issue

1

Start / End Page

25 / 44

Related Subject Headings

  • Economics
  • 3803 Economic theory
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1403 Econometrics
  • 1402 Applied Economics
  • 1401 Economic Theory