A Scapegoat Model of Exchange Rate Fluctuations

Détails

ID Serval
serval:BIB_626F68393A60
Type
Article: article d'un périodique ou d'un magazine.
Collection
Publications
Institution
Titre
A Scapegoat Model of Exchange Rate Fluctuations
Périodique
American Economic Review, Papers and Proceedings
Auteur⸱e⸱s
Bacchetta P., van Wincoop E.
ISSN
0002-8282
Statut éditorial
Publié
Date de publication
05/2004
Peer-reviewed
Oui
Volume
94
Numéro
2
Pages
114-118
Langue
anglais
Résumé
While empirical evidence finds only a weak relationship between nominal exchange rates and macroeconomic fundamentals, forex markets participants often attribute exchange rate movements to a macroeconomic variable. The variables that matter, however, appear to change over time and some variable is typically taken as a scapegoat. For example, the current dollar weakness appears to be caused almost exclusively by the large current account deficit, while its previous strength was explained mainly by growth differentials. In this paper, we propose an explanation of this phenomenon in a simple monetary model of the exchange rate with noisy rational expectations, where investors have heterogeneous information on some structural parameter of the economy. In this context, there may be rational confusion about the true source of exchange rate fluctuations, so that if an unobservable variable affects the exchange rate, investors may attribute this movement to some current macroeconomic fundamental. We show that this effect applies only to variables with large imbalances. The model thus implies that the impact of macroeconomic variables on the exchange rate changes over time.
Web of science
Création de la notice
19/11/2007 11:29
Dernière modification de la notice
20/08/2019 15:19
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