Quotation Badinger, Harald, Kubin, Ingrid. 2008. AS-AD revisited: overshooting adjustment dynamics under naive expectations. Metroeconomica 59 (4): 574-593.


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Abstract

We analyse the adjustment dynamics from a short-term to a medium-term equilibrium in a standard AS-AD model à la Blanchard (2006, Macroeconomics, 4th edn, Prentice-Hall, Upper Saddle River, NJ) for an open economy with fixed and flexible exchange rates. An explicit analysis suggests the local stability of the medium-term equilibrium. However, an overshooting adjustment dynamics is possible for the exchange rate, a result that directly relates to the famous Dornbusch (1976, Journal of Political Economy, 84, pp. 1161–1176) analysis. In contrast to the latter, in the Blanchard framework it is obtained without assuming rational expectations and without relying upon saddle-path stability.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Metroeconomica
Language English
Title AS-AD revisited: overshooting adjustment dynamics under naive expectations
Volume 59
Number 4
Year 2008
Page from 574
Page to 593
Reviewed? Y

Associations

People
Badinger, Harald (Details)
Kubin, Ingrid (Details)
Organization
Europainstitut (Badinger) (Former organization)
Research Institute for International Taxation FI (Details)
Institute for International Economics and Development IN (Details)
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