Sticky Exchange Rates and Flexible Prices : A Heretic View From the Interwar Period

Author/Editor:

Anne Marie Gulde ; Holger C. Wolf

Publication Date:

December 1, 1991

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Real exchange rate variability tends to be higher under flexible than under fixed exchange rates. The neokeynesian view attributes the higher variability to the combination of volatile nominal exchange rates with sticky prices. The neoclassical approach regards an increased incidence of real shocks as the culprit. We test the crucial assumptions underlying the two models for the interwar period. Prices and exchange rates are found to be equally flexible. We hence reject the neokeynesian sticky price view for our sample period. In contrast, our results are consistent with, while not constituting evidence for, the neoclassical equilibrium approach.

Series:

Working Paper No. 91/124

Notes:

Also published in Staff Papers, Vol. 39, No. 3, September 1992.

English

Publication Date:

December 1, 1991

ISBN/ISSN:

9781451937855/1018-5941

Stock No:

WPIEA1241991

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

74

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