Estimated Output, Price, Interest Rate, and Exchange Rate Linkages among Countries
AbstractThis paper provides quantitative estimates of the output, price, interest rate, and exchange rate linkages among a number of countries. The econometric model that is used for this purpose is described in Fair (1981), and the present paper is an extension of this work. The linkages are examined by changing various policy variables and observing the resulting change in the endogenous variables. The model is also used to estimate what is called the "exchange rate effect" on inflation. One of the ways in which monetary and fiscal policies may affect a country's inflation rate is by first influencing its exchange rate, which in turn influences import prices, which in turn influences domestic prices. The model allows this exchange rate effect on inÃÂ£ lat ion to be estimated. The results in the paper give a good indication of the properties of the model. The linkages among countries are complicated and there are few unambiguous effects with respect to sign. This is true not just in principle but also in fact. Depreciation, for example, increases GNP for Japan, but decreases it for Germany and the U.K. A spending in- crease leads to a depreciation in Japan, but to an appreciation in Germany and the U.K. A spending increase in the U.S. has noticeably different effects on different countries. The results also show the importance of price, interest rate, and exchange rate linkages among countries as well as the usual trade linkages.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Political Economy.
Volume (Year): 90 (1982)
Issue (Month): 3 (June)
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Web page: http://www.journals.uchicago.edu/JPE/
Other versions of this item:
- Ray C. Fair, 1981. "Estimated Output, Price, Interest Rate, and Exchange Rate Linkages amongCountries," NBER Working Papers 0677, National Bureau of Economic Research, Inc.
- Ray C. Fair, 1981. "Estimated Output, Price, Interest Rate, and Exchange Rate Linkages Among Countries," Cowles Foundation Discussion Papers 592, Cowles Foundation for Research in Economics, Yale University.
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.:
- Ray C. Fair, 1981.
"Estimated Effects of Relative Prices on Trade Shares,"
Cowles Foundation Discussion Papers
597, Cowles Foundation for Research in Economics, Yale University.
- Ray C. Fair, 1981. "Estimated Effects of Relative Prices on Trade Shares," NBER Working Papers 0696, National Bureau of Economic Research, Inc.
- Shin-ichi Fukuda, 1998.
"Extraneous Shocks and International Linkage of Business Cycles in a Two-Country Monetary Model,"
CIRJE-F-16, CIRJE, Faculty of Economics, University of Tokyo.
- Fukuda, Shin-ichi, 2004. "Extraneous shocks and international linkage of business cycles in a two-country monetary model," Journal of Economic Behavior & Organization, Elsevier, vol. 54(3), pages 389-409, July.
- Joaquín Pi Anguita, 1990. "Política macroeconómica en uniones monetarias," Investigaciones Economicas, Fundación SEPI, vol. 14(2), pages 213-224, May.
- John F. Helliwell & Tim Padmore, 1982.
"Empirical Studies of Macroeconomic Interdependence,"
NBER Working Papers
1021, National Bureau of Economic Research, Inc.
- Helliwell, John F. & Padmore, Tim, 1985. "Empirical studies of macroeconomic interdependence," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 21, pages 1107-1151 Elsevier.
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