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Comprehensive accounting in simple open economy macroeconomics with endogenous sterilization or flexible exchange rates

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Author Info

  • WYNNE GODLEY
  • MARC LAVOIE

Abstract

This paper presents a stock-flow model of two economies (together comprising the whole world) that trade goods and financial assets with one another. The first part of the paper describes a single economy on a fixed exchange rate, with no private capital flows, in order to obtain simple analytic solutions that display the basic constraints and forces at work--notably, endogenous "sterilization." The second part describes a flexible exchange rate model, with two economies trading financial assets as well as merchandise. A final section adapts the two-country model to describe a fixed exchange rate regime. Our findings challenge established results, such as those of the Mundell- Fleming model.

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File URL: http://mesharpe.metapress.com/link.asp?target=contribution&id=7XENHLRED1XG7A72
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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 28 (2006)
Issue (Month): 2 (January)
Pages: 241-276

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Handle: RePEc:mes:postke:v:28:y:2006:i:2:p:241-276

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348

Related research

Keywords: exchange rate determination; open economy macroeconomics; portfolio analysis; sterilization; stocks and flows; two-country models;

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Cited by:
  1. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2012. "Exchange Rate Misalignments, Fiscal Federalism and Redistribution: How to Adjust in a Monetary Union," Post-Print halshs-00848886, HAL.
  2. Saadaoui, Jamel, 2012. "Déséquilibres globaux, taux de change d’équilibre et modélisation stock-flux cohérente
    [Global Imbalances, Equilibrium Exchange Rates and Stock-Flow Consistent Modelling]
    ," MPRA Paper 51332, University Library of Munich, Germany.
  3. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2013. "Désajustements de change, fédéralisme budgétaire et redistribution. Comment s'ajuster en union monétaire," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 57-96.

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