Definition of Overshooting:
Overshooting was introduced by German economist Rudiger Dornbusch, the renowned economist focusing on international economics, including monetary policy, macroeconomic development, growth and international trade. The model was first introduced in the famous paper "Expectations and Exchange Rate Dynamics," published in 1976 in the Journal of Political Economy. The model is now widely known as the Dornbusch Overshooting Model. Although Dornbusch's model was compelling, at the time it was also regarded as somewhat radical due to its assumption of sticky prices. Today, however, sticky prices are widely accepted as fitting with empirical economic observations. Today, Dornbusch's Overshooting Model is widely regarded as the forerunner to modern international economics. In fact, some have said it "marks the birth of of modern international macroeconomics.".
Overshooting, also known as the overshooting model, or the exchange rate overshooting hypothesis, is a way to think about and explain high levels of volatility in exchange rates.
Situation where the initial response of a factor to an impact or shock is greater than its longer-term response.
How to use Overshooting in a sentence?
- The paper's main thesis is that prices of goods in an economy do not immediately react to a change in foreign exchange rates. Instead, a domino effect that encompasses other actors - financial markets, money markets, derivatives markets, bond markets - help transfer its effect onto goods prices.
- The overshooting model establishes a relationship between sticky prices and volatile exchange rates.
Meaning of Overshooting & Overshooting Definition