Monetary Policy, Elasticity Dynamics, and Real Exchange Rate Reversal.

The article presents an analysis into the real exchange rate reversal experienced by the U.S. dollar in the 1980s and its interpretation through models of exchange rate overshooting in monetary policy. Modeling suggestions regarding a hysteresis effect in which permanent change is derived from transient shocks, such as depreciation induced after a large appreciation event, are analyzed. A review of previous models addressing this phenomena is given and a synthesis of their primary computations is offered, focusing on the principle of elasticity dynamics eliciting persistent effects after immediate ones.