Delayed Overshooting: Is It an '80s Puzzle? Articles uri icon

publication date

  • October 2017

start page

  • 1570

end page

  • 1598


  • 5


  • 125

International Standard Serial Number (ISSN)

  • 0022-3808

Electronic International Standard Serial Number (EISSN)

  • 1537-534X


  • 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.