Shocks measured with the Dornbusch Overshooting Model: An exchange rate determination for Brazil, Russia, India and China.

There were many causes for the financial crisis which developed during 2007. The crisis spread globally leaving no country unaffected. This study will study the impact of shocks via the Overshooting Model on annual data. The research provides both evidence and falsification to parts of the Dornbusch Overshooting Model. The assumption of Uncovered Interest Rate Parity (UIRP) and expectations lacks significance in the BRIC countries, except for China. Also it shows that GDP is a major indicator for movements in the real exchange rates. In turn does the real exchange rate effects the demand for output, but the model could not explain the direction of the effects. This research shows that the BRIC countries are affected differently on economical shocks.