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Capital Mobility and Devaluation in an Optimizing Model with Rational Expectations

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  • Maurice Obstfeld

Abstract

This paper examines the effects of ex-change-rate policies when individuals maximize lifetime utility on the basis of rational expectations about the future. The economy studied is one in which the authorities allow free mobility of capital under a crawling-peg exchange-rate regime. Many industrializing economies have adopted a crawling peg as a means of reconciling disparate inflation rates at home and abroad, and some recent efforts to use the rate of crawl as an instrument of anti-inflation policy have attracted considerable interest (see Carlos Diaz Alejandro). Tools similar to those employed here have been applied by Guillermo Calvo (forthcoming) to study this type of exchange-rate management under conditions of capital immobility.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0557.

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Date of creation: Oct 1980
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Publication status: published as Obstfeld, Maurice. "Capital Mobility and Devaluation in an Optimizing Modelwith Rational Expectations." The American Economic Review, Vol. 71, No. 2,(May 1981), pp. 217-221.
Handle: RePEc:nbr:nberwo:0557

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  1. Frenkel, Jacob A & Rodriguez, Carlos Alfredo, 1975. "Portfolio Equilibrium and the Balance of Payments: A Monetary Approach," American Economic Review, American Economic Association, American Economic Association, vol. 65(4), pages 674-88, September.
  2. Dornbusch, Rudi, 1996. "The Effectiveness of Exchange-Rate Changes," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 12(3), pages 26-38, Autumn.
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Cited by:
  1. Ghironi, Fabio, 2006. "Macroeconomic interdependence under incomplete markets," Journal of International Economics, Elsevier, Elsevier, vol. 70(2), pages 428-450, December.
  2. Francis, J. & Kompas, T., 1998. "Uzawa's Transformation and Optimal Control Problems With Variable Rates of Time Preference," Papers, Australian National University - Department of Economics 354, Australian National University - Department of Economics.
  3. Arman Mansoorian & Simon Neaime, 1996. "Habits and Durability in Consumption, and the Effects of Exchange Rate Policies," Working Papers, York University, Department of Economics 1996_06, York University, Department of Economics.
  4. Ghironi, Fabio, 2008. "The role of net foreign assets in a New Keynesian small open economy model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 32(6), pages 1780-1811, June.
  5. James G. MacKinnon & Alfred A. Haug & Leo Michelis, 1996. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Working Papers, York University, Department of Economics 1996_07, York University, Department of Economics.
  6. Mansoorian Arman & Neaime Simon, 2002. "Habits And Durability In Consumption And The Effects Of Exchange Rate Policies," International Economic Journal, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(2), pages 97-114.
  7. Mansoorian, Arman & Neaime, Simon, 2003. "Durable goods, habits, time preference, and exchange rates," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 14(1), pages 115-130, March.
  8. Arman Mansoorian, 1999. "On Cash in Advance Constraints for Open Economies," Working Papers, York University, Department of Economics 1999_02, York University, Department of Economics.
  9. Mohsin, Mohammed, 2004. "Exchange rate policies and endogenous time preference: a dynamic analysis of a small open economy," Economics Letters, Elsevier, Elsevier, vol. 82(2), pages 195-203, February.
  10. Tom Kompas & Omar Abdel-Razeq, 2001. "A Simple Monetary Growth Model with Variable Rates of Time Preference," International and Development Economics Working Papers, International and Development Economics idec01-10, International and Development Economics.
  11. AKITOBY, Bernardin, 1997. "Termes de l'échange endogènes et cycles économiques réels : une application à la Côte-d'Ivoire," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9701, Universite de Montreal, Departement de sciences economiques.
  12. Mansoorian, Arman & Mohsin, Mohammed, 2006. "On the employment, investment and current account effects of inflation," Journal of International Economics, Elsevier, Elsevier, vol. 70(1), pages 296-313, September.
  13. Sushanta K. Mallick & Mohammed Mohsin, 2007. "Monetary policy in high inflation open economies: evidence from Israel and Turkey," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 12(4), pages 405-415.
  14. Maurice Obstfeld, 1988. "Exchange-Rate Dynamics and Optimal Asset Accumulation Revisited," NBER Technical Working Papers 0064, National Bureau of Economic Research, Inc.
  15. Aoki, Yoshimasa & Tomoda, Yasunobu, 2009. "Optimal money supply in models with endogenous discount factor," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 49(3), pages 798-810, August.
  16. Arman Mansoorian & Mohammed Mohsin, 2002. "The Employment, Investment and Current Account Effects of Exchange Rate Policies in a Cash-in-Advance Economy," Working Papers, York University, Department of Economics 2002_04, York University, Department of Economics.
  17. Mansoorian, Arman & Michelis, Leo, 2010. "Monetary policy in a small open economy with durable goods and differing cash-in-advance constraints," Economics Letters, Elsevier, Elsevier, vol. 107(2), pages 246-248, May.
  18. Dudley, L., 1980. "Macroeconomic Interdependence and the Terms of Trade," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 8014, Universite de Montreal, Departement de sciences economiques.

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