Dornbusch Overshooting Model

First published: 1989

Brief summary

NBER paper entry for classic exchange-rate dynamics.

Article

The linked NBER paper is titled “Venture Capital and Capital Gains Taxation.” It is unrelated to the Dornbusch exchange-rate overshooting model, so the spreadsheet topic and source do not match.

The paper examines how personal capital-gains tax rates may affect venture-capital activity. It distinguishes between effects on the supply of investment funds and effects on the supply and incentives of entrepreneurs.

The author argues that the supply-of-funds channel is unlikely to be the main mechanism because many venture investors are tax-exempt. Capital-gains taxation may instead influence founders and employees who accept shares or options in place of current wage income.

The paper concludes that a general reduction in capital-gains tax is a broad policy instrument for encouraging venture investment. It contains no analysis of sticky prices, monetary shocks or short-run exchange-rate overshooting.

Source details and credits

• Source / publisher: NBER
• Source type: Working paper
• URL type: WWW
• Credits: NBER
• URL: https://www.nber.org/papers/w2832