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Delayed overshooting: is it an '80s puzzle?

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URI: https://hdl.handle.net/10016/34985
ISSN: 0022-3808
DOI: https://doi.org/10.1086/693372
UXXI: AR/0000020534
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delayed_JPE_2017.pdf (1.39 MB)
appendix_delayed_2017.pdf (842.44 KB)
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2017-10-01
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The University of Chicago Press
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We reinvestigate the delayed overshooting puzzle. Using a method of sign restrictions,we find that delayed overshooting is primarily a phenomenon of the 1980s when the Fed was under the chairmanship of Paul Volcker. Related findings are as follows: (1) Uncovered interest parity fails to hold during the Volcker era and tends to hold during the post- Volcker era; (2) US monetary policy shocks have substantial impacts on exchange rate variations but misleadingly appear to have small impacts when monetary policy regimes are pooled. In brief, we confirm Dornbusch’s overshooting hypothesis.
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Kim, S.-H., Moon, S., & Velasco, C. (2017). Delayed Overshooting: Is It an ’80s Puzzle? Journal of Political Economy, 125 (5), pp. 1570-1598.
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