Dornbusch Exchange Rate Overshooting Model
Table of Contents Introduction . 3 Understanding the Overshooting Model 3 Conclusion . 4 Reference List 6 Introduction Like various other models, the overshooting model, also known as the Dornbusch model , helps with the fluctuations caused by the change in monetary supply. Such a concept is required in understanding economic changes and fluctuations. The purpose of this discussion is to analyse the different aspects of the overshooting model and understand its assumptions and implications. While understanding the details of the overshooting model, the analysis will further constitute the intactness of the hypothesis. Understanding the Overshooting Model The overshooting model of Dornbusch’s model is the excessive short-term exchange rate movement due to changes in the money supply caused by the stickiness of price (WallStreetMojo, 2022). In simple words, using the concept of price stickiness the overshooting model explains the increase in vol...