ABSTRACT
Dornbusch published a seminal paper in 1976 which has since, deservedly, been very widely cited. Dornbusch's model of a small economy provides an excellent illustration of the dynamic effects of an unanticipated change in the money supply on prices, exchange rates and interest rates, assuming expectations are rationally formed. We propose in this chapter to present its key features, highlighting particularly the long-run results, the instantaneous results and the time path of adjustment towards the longer run.
