Complex dynamics of the real exchange rate in an open macroeconomic model
Journal
Journal of Macroeconomics
Journal Volume
21
Journal Issue
3
Pages
493-508
Date Issued
1999
Author(s)
Abstract
This paper investigates the behavior of the real exchange rate in the context of a nonlinear discrete-time dynamic system within an open-economy macroeconomic framework. Postulating that domestic prices are freely flexible, it is shown that the real exchange rate can exhibit complex dynamic behavior when the Marshall-Lerner condition is not fulfilled and that the complexity of the dynamics is due to the low degree of capital mobility. Advances in the area of nonlinear dynamics give us a chance to take a new look at the Sohmen case for flexible exchange rates from another point of view.
Type
journal article