Diversified Currency Holdings and Exchange Rate Dynamics
In this study, we incorporate diversified currency holdings into the New Open Economy Macroeconomics (NOEM) model to explore the issue of exchange rates dynamics. The findings show that exchange rate overshooting occurs when diversified currency holdings are included in a two-country dynamic optimiz...
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
EconJournals
2015-09-01
|
| Series: | International Journal of Economics and Financial Issues |
| Subjects: | |
| Online Access: | https://dergipark.org.tr/tr/pub/ijefi/issue/31970/352173?publisher=http-www-cag-edu-tr-ilhan-ozturk |
| _version_ | 1797906256917168128 |
|---|---|
| author | Chung-Fu Lai Shan-Kai Tsai |
| author_facet | Chung-Fu Lai Shan-Kai Tsai |
| author_sort | Chung-Fu Lai |
| collection | DOAJ |
| description | In this study, we incorporate diversified currency holdings into the New Open Economy Macroeconomics (NOEM) model to explore the issue of exchange rates dynamics. The findings show that exchange rate overshooting occurs when diversified currency holdings are included in a two-country dynamic optimizing NOEM model, and the extent of the overshoot depends on the level of diversified currency holdings. Regarding welfare analysis, an expansionary monetary policy of the home country increases domestic welfare. Also, we find that current account plays an important role in the effect of monetary policy on exchange rates, the increase in the domestic money supply stimulates domestic consumption expenditure through the effects of current account improvements, resulting in exchange rate appreciation. |
| first_indexed | 2024-04-10T10:18:02Z |
| format | Article |
| id | doaj.art-a42bc314e5cb41328d6af3ab349d3a9f |
| institution | Directory Open Access Journal |
| issn | 2146-4138 |
| language | English |
| last_indexed | 2024-04-10T10:18:02Z |
| publishDate | 2015-09-01 |
| publisher | EconJournals |
| record_format | Article |
| series | International Journal of Economics and Financial Issues |
| spelling | doaj.art-a42bc314e5cb41328d6af3ab349d3a9f2023-02-15T16:21:46ZengEconJournalsInternational Journal of Economics and Financial Issues2146-41382015-09-01536786891032Diversified Currency Holdings and Exchange Rate DynamicsChung-Fu LaiShan-Kai TsaiIn this study, we incorporate diversified currency holdings into the New Open Economy Macroeconomics (NOEM) model to explore the issue of exchange rates dynamics. The findings show that exchange rate overshooting occurs when diversified currency holdings are included in a two-country dynamic optimizing NOEM model, and the extent of the overshoot depends on the level of diversified currency holdings. Regarding welfare analysis, an expansionary monetary policy of the home country increases domestic welfare. Also, we find that current account plays an important role in the effect of monetary policy on exchange rates, the increase in the domestic money supply stimulates domestic consumption expenditure through the effects of current account improvements, resulting in exchange rate appreciation.https://dergipark.org.tr/tr/pub/ijefi/issue/31970/352173?publisher=http-www-cag-edu-tr-ilhan-ozturkdiversified currency holdings exchange rate dynamics micro-foundations |
| spellingShingle | Chung-Fu Lai Shan-Kai Tsai Diversified Currency Holdings and Exchange Rate Dynamics International Journal of Economics and Financial Issues diversified currency holdings exchange rate dynamics micro-foundations |
| title | Diversified Currency Holdings and Exchange Rate Dynamics |
| title_full | Diversified Currency Holdings and Exchange Rate Dynamics |
| title_fullStr | Diversified Currency Holdings and Exchange Rate Dynamics |
| title_full_unstemmed | Diversified Currency Holdings and Exchange Rate Dynamics |
| title_short | Diversified Currency Holdings and Exchange Rate Dynamics |
| title_sort | diversified currency holdings and exchange rate dynamics |
| topic | diversified currency holdings exchange rate dynamics micro-foundations |
| url | https://dergipark.org.tr/tr/pub/ijefi/issue/31970/352173?publisher=http-www-cag-edu-tr-ilhan-ozturk |
| work_keys_str_mv | AT chungfulai diversifiedcurrencyholdingsandexchangeratedynamics AT shankaitsai diversifiedcurrencyholdingsandexchangeratedynamics |