A phenomenon in economics used to explain why exchange rates are more volatile than would be expected. Some economists had argued that volatility was purely the result of speculators and inefficiencies in the foreign exchange market. However, the overshooting model argues that the foreign exchange rate will temporarily overreact to changes in monetary policy to compensate for sticky prices in the economy. Thus, there will be more volatility in the exchange rate due to overshooting and subsequent corrections that would otherwise be expected.

Overshooting was introduced by German economist Rudi Dornbusch in the famous paper "Expectations and Exchange Rate Dynamics," published in 1976. 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. Dornbusch's Overshooting Model is regarded as a forerunner to modern international economics.

Investment dictionary. . 2012.

Look at other dictionaries:

  • overshooting — (izg. ȏveršūting) m DEFINICIJA ekon. slučaj drukčijeg djelovanja neke pojave u kratkom roku nego što je njezino djelovanje na dugi rok ETIMOLOGIJA vidi overshoot …   Hrvatski jezični portal

  • Overshooting — The tendency of a pool of MBSs to reflect an especially high rate or prepayments the first time it crosses the threshold for refinancing, especially if two or more years have passed since the date of issue without the WAC of the pool having… …   Financial and business terms

  • overshooting — The tendency of a pool of MBS to reflect an especially high rate of prepayments the first time it crosses the threshold for refinancing, specially if two or more years have passed since the date of issue without the weighted average coupon of the …   Financial and business terms

  • Overshooting — Overshoot O ver*shoot , v. t. [imp. & p. p. {Overshot}; p. pr. & vb. n. {Overshooting}.] 1. To shoot over or beyond; to miss; as, to overshoot a mark; to overshoot the green in golf. Not to overshoot his game. South. [1913 Webster] 2. Hence: To… …   The Collaborative International Dictionary of English

  • overshooting — A jump in the value of an asset followed by a slow adjustment to equilibrium. Overshooting has been used as an explanation of exchange rate movements arising from adjustment problems in economies …   Big dictionary of business and management

  • Overshooting — ⇡ Überschießen des nominellen Wechselkurses …   Lexikon der Economics

  • overshooting — n. act or instance of missing the target; act or instance of shooting over something ,o·ver shoot || ‚əʊvÉ™(r) ʃuːt v. shoot over; miss the target …   English contemporary dictionary

  • Overshooting top — An overshooting top protruding above the anvil at the top of a thunderstorm An overshooting top (or penetrating top) is a dome like protrusion that shoots out of the top of the anvil of a thunderstorm. When an overshooting top is present for 10… …   Wikipedia

  • Overshooting model — The Overshooting Model or Exchange rate overshooting, first developed by economist Rudi Dornbusch, aims to explain why exchange rates have a high variance. A key element of the model is that expectations of exchange rate changes are consistent… …   Wikipedia

  • Чрезмерный рост — OVERSHOOTING Резкое увеличение стоимости актива с последующим медленным возвратом к равновесному состоянию. Чрезмерный рост валютных курсов, например, часто наблюдается в условиях системы плавающих валютных курсов, когда в ответ на какое либо… …   Словарь-справочник по экономике