{
  "title": "Euro-Dollar Real Exchange Rate Dynamics in an Estimated Two-Country Model: What is Important and What is Not",
  "publication": "IMF Working Papers, July 1, 2006",
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  "summary": "We use a Bayesian approach to estimate a standard two-country New Open Economy Macroeconomics model using data for the United States and the euro area, and we perform model comparisons to study the importance of departing from the law of one price and complete markets assumptions.",
  "sections": [
    {
      "heading": "Methodology",
      "content": "- Bayesian approach to estimate a standard two-country New Open Economy Macroeconomics model using data for the United States and the euro area.\n- Performed model comparisons to study the importance of departing from:\n  - the law of one price assumption, and\n  - complete markets assumption."
    },
    {
      "heading": "Key findings",
      "content": "- The baseline model:\n  - does a good job in explaining real exchange rate volatility;\n  - but overestimates volatility in output and consumption.\n- Introducing incomplete markets:\n  - allows the model to better match the volatilities of all real variables.\n- Introducing sticky prices in Local Currency Pricing:\n  - improves the fit of the baseline model;\n  - does not improve the fit as much as introducing incomplete markets.\n- Shocks driving real exchange rate behavior:\n  - monetary shocks have played a minor role;\n  - both demand and technology shocks have been important."
    },
    {
      "heading": "Subjects and keywords emphasized in the study",
      "content": "- Subjects: Consumption, Exchange rates, Financial markets, Foreign exchange, Inflation, National accounts, Prices, Real exchange rates, Securities markets.\n- Keywords: Bayesian estimation, closed economy, Consumption, demand shock, exchange rate, exchange rate-consumption anomaly, Exchange rates, Inflation, model comparison, Real exchange rates, Securities markets, standard deviation, technology shock, U.S. dollar, WP.\n\nEuro-Dollar Real Exchange Rate Dynamics in an Estimated Two-Country Model: What is Important and What is Not — Vicente Tuesta; Pau Rabanal (July 1, 2006).\n\n---\n\n Content in this bundle\n\n- wp06177\n  - wp06177 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp06177 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/euro-dollar-real-exchange-rate-dynamics-in-an-estimated-two-country-model-what-is-important-19257"
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    "Authors: Vicente Tuesta, Pau Rabanal",
    "Published: July 1, 2006",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451864373.001",
    "Bayesian approach to estimate a standard two-country New Open Economy Macroeconomics model using data for the United States and the euro area.",
    "Performed model comparisons to study the importance of departing from:",
    "The baseline model:",
    "Introducing incomplete markets:",
    "Introducing sticky prices in Local Currency Pricing:",
    "Shocks driving real exchange rate behavior:",
    "Subjects: Consumption, Exchange rates, Financial markets, Foreign exchange, Inflation, National accounts, Prices, Real exchange rates, Securities markets.",
    "Keywords: Bayesian estimation, closed economy, Consumption, demand shock, exchange rate, exchange rate-consumption anomaly, Exchange rates, Inflation, model comparison, Real exchange rates, Securities markets, standard deviation, technology shock, U.S. dollar, WP.",
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