Economics Commons^™

Exchange Rate Overvaluation Under Hyperinflation : The Case Of Peru, Rafael Amiel-Saenz

FIU Electronic Theses and Dissertations

This dissertation examines the behavior of the exchange rate under two different scenarios. The first one is characterized by, relatively, low inflation or a situation where prices adjust sluggishly. The second is a high inflation economy where prices respond very rapidly even to unanticipated shocks. In the first one, following a monetary expansion, the exchange rate overshoots, i.e. the nominal exchange rate depreciates at a faster pace than the price level. Under high levels of inflation, prices change faster than the exchange rate so the exchange rate undershoots its long run equilibrium value.

The standard work in this area, Dornbusch …