Imperfect asset substitutability and monetary policy under fixed exchange rates
AbstractThis paper presents a long-run model of the open economy in a world of fixed exchange rates and imperfect substitutability between bonds denominated in different currencies. The model explicitly accounts for the wealth flow accompanying current-account imbalance and for the flow of interest payments associated with international lending. Both the dynamic and steady-state implications of the model are quite different from those of models that specify the capital account as a continuing flow responding to the level of interest rates. In particular, we find that when there exists outside government debt, open-market policy is not in general neutral in the long run. We also find conditions under which the central bank is able to hold the domestic price level constant in the face of an inflationary disturbance from abroad without exhausting, in the long run, its stock of domestic assets.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Economics.
Volume (Year): 10 (1980)
Issue (Month): 2 (May)
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Web page: http://www.elsevier.com/locate/inca/505552
Other versions of this item:
- Maurice Obstfeld, 1980. "Imperfect Asset Substitutability and Monetary Policy under Fixed Exchange Rates," NBER Working Papers 0485, National Bureau of Economic Research, Inc.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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