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SUMMARY:Exchange Rate Disconnect in General Equilibrium
DTSTART:20180611T103000
DTEND:20180611T120000
DTSTAMP:20260415T000708Z
UID:40c6be1f99f0d90988fd77e38698ba129bc780103dfd3bbbb51ce462
CATEGORIES:Conferences - Seminars
DESCRIPTION:Oleg ITSKHOKI (Princeton University)\nWe propose a dynamic gen
 eral equilibrium model of exchange rate determination\, which simultaneous
 ly accounts for all major puzzles associated with nominal and real exchang
 e rates. This includes the Meese-Rogoff disconnect puzzle\, the PPP puzzle
 \, the terms-of-trade puzzle\, the Backus-Smith puzzle\, and the UIP puzzl
 e. The model has two main building blocks — the driving force (or the ex
 ogenous shock process) and the transmission mechanism — both crucial for
  the quantitative success of the model. The transmission mechanism — whi
 ch relies on strategic complementarities in price setting\, weak  substit
 utability between domestic and foreign goods\, and home bias in consumptio
 n — is tightly disciplined by the micro-level empirical estimates in the
  recent international macroeconomics literature. The driving force is an e
 xogenous small but persistent shock to international asset demand\, which 
 we prove is the only type of shock that can generate the exchange rate dis
 connect properties. We then show that a model with this financial shock al
 one is quantitatively consistent with the moments describing the dynamic c
 omovement between exchange rates and macro variables. Nominal rigidities i
 mprove on the margin the quantitative performance of the model\, but are n
 ot necessary for exchange rate disconnect\, as the driving force does not 
 rely on the monetary shocks. We extend the analysis to multiple shocks and
  an explicit model of the financial sector to address the additional Mussa
  puzzle and Engel’s risk premium puzzle.\n 
LOCATION:UNIL\, Extranef\, room 126 https://planete.unil.ch/plan/?local=EX
 T-126
STATUS:CONFIRMED
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