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Paper eres2005_190:
Owner-Used Capital Goods and the Exchange Rate Determination

id eres2005_190
authors Gurdgiev, Constantin T.
year 2005
title Owner-Used Capital Goods and the Exchange Rate Determination
source Book of Abstracts: 2005 European Real Estate Society conference in association with the International Real Estate Society
summary Present paper addresses the issue of the short and long run determination of the exchange rates in the Redux model of Obstfeld and Rogoff (1995). Current extension of the Redux model includes the investment projects that simultaneously can serve as investment allocation subject to the capital gains, as well as a regular consumption good. In contrast to the standard theoretical results, our model produces the exchange rate overshooting both in presence and in absence of price rigidities in the markets for final goods. This effect depends on the size of the owner-used capital goods expenditure relative to the total consumption expenditure, as well as the initial level of inflation at home. Depending on parameter values, and the initial conditions, the model supports possibility for exchange rate dynamics that include either overshooting or undershooting.
series ERES:conference
type normal paper
discussion No discussions. Post discussion ...
session Session I1
last changed 2008/11/01 09:47
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