An Overview Study on Dornbusch Overshooting Hypothesis

Abstract

Thirty years have passed since Dornbusch first published his overshooting hypothesis on “Expectations and Exchange Rate Dynamics”. Reviewing and appraising the advantages and disadvantages of this elegant model in international economics is of great importance to the consideration of establishing exchange rate and macro-economic policy in the future. In this paper, the author provides an analysis and empirical evidence for and against this influential model. Some conclusions are drawn from an all-sided discussion.