Phillips curve shocks and real exchange rate fluctuations: SVAR evidence

Arbeitspapier

Steinsson (2008) shows that real shocks that affect the New Keynesian Phillips curve explain the behavior of the real exchange rate in a sticky-price business cycle model. This paper reveals that these shocks are important for the volatility of the real exchange rate in the data. In a structural VAR analysis, we identify productivity, labor supply, cost-push, government spending, risk premium, and monetary policy shocks using sign restrictions derived from Steinsson's model. We study different methods of variance decomposition. According to the forecast error variance decomposition, the real demand shocks are the most important source of real exchange rate volatility. At business cycle frequencies, however, three supply shocks account for up to 40 percent of real exchange rate fluctuations.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IWQW Discussion Papers ; No. 11/2014

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Foreign Exchange ; Current Account Adjustment; Short-term Capital Movements ; Open Economy Macroeconomics
• Subject: real exchange rate ; supply shock ; structural vector autoregression ; sign restriction ; business cycle variance decomposition

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gehrke, Britta ; Yao, Fang
• Event: Veröffentlichung
• (who): Friedrich-Alexander-Universität Erlangen-Nürnberg, Institut für Wirtschaftspolitik und Quantitative Wirtschaftsforschung (IWQW)
• (where): Nürnberg
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/101321
• Last update: 10.03.2025, 11:42 AM CET