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Wealth Targets, Exchange Rate Targets And Macroeconomic Policy

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Author Info

  • BLAKE, A.
  • VINES, D.
  • WEALE, M.

Abstract

This paper argues that a wealth target is an important feature of an economic policy package. A real exchange rate target can be used as an intermediate target to steer national wealth towards its desired value. Such a policy requires that fiscal policy be used to restrain inflation. This may be difficult if there is real wage resistance. In this instance, fiscal policy must be used to maintain national wealth, with monetary policy being used to restrain inflation. In this case also, monetary policy can be implemented by means of an exchange rate target. These arguments are demonstrated algebraically and then illustrated using policy rules designed for use on a model of the United Kingdom economy.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 887.

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Length: 40 pages
Date of creation: 1988
Date of revision:
Handle: RePEc:cam:camdae:887

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Web page: http://www.econ.cam.ac.uk/index.htm

Related research

Keywords: wealth ; exchange rate ; fiscal policy ; monetary policy ; inflation;

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Cited by:
  1. Agnello, Luca & Dufrénot, Gilles & Sousa, Ricardo M., 2013. "Using time-varying transition probabilities in Markov switching processes to adjust US fiscal policy for asset prices," Economic Modelling, Elsevier, vol. 34(C), pages 25-36.
  2. Luca Agnello & Gilles Dufrénot & Ricardo M. Sousa, 2012. "Adjusting the U.S. Fiscal Policy for Asset Prices: Evidence from a TVP-MS Framework," NIPE Working Papers 20/2012, NIPE - Universidade do Minho.
  3. Luca Agnello & Vítor Castro & Ricardo M. Sousa, 2011. "How Does Fiscal Policy React to Wealth Composition and Asset Prices?," NIPE Working Papers 24/2011, NIPE - Universidade do Minho.
  4. Alexander Zimper, 2013. "The minimal confidence levels of Basel capital regulation," Working Papers 201305, University of Pretoria, Department of Economics.
  5. Rangan Gupta & Charl Jooste & Kanyane Matlou, 2013. "A Time-Varying Approach to Analysing Fiscal Policy and Asset Prices in South Africa," Working Papers 201303, University of Pretoria, Department of Economics.

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