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Multiple Balances

Author

Listed:
  • Persio Arida

Abstract

The note is the second of a series of four notes written for students on current policy debates. It focuses on a simple open economy model in which there is a subjective default probability on domestic debt. Under certain conditions there is more than one pair interest/exchange consistent with a given inflation target. Dynamics is explored under a simple behavior rule according to which Central Bank increases interest if inflation is above target. The effect of credible fiscal tightening, external shocks in interest rates or sovereig debt and expected changes in the convertibility regime are discussed. JEL Classification: E43.

Suggested Citation

  • Persio Arida, 2002. "Multiple Balances," Brazilian Journal of Political Economy, Center of Political Economy, vol. 22(3), pages 508-517.
    • Handle: RePEc:ekm:repojs:v:22:y:2002:i:3:p:508-517:id:948
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    File URL: https://centrodeeconomiapolitica.org.br/repojs/index.php/journal/article/view/948/2156
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    More about this item

    Keywords

    Interest rate; double balance; convertibility; sovereign risk;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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