Advanced Search
MyIDEAS: Login to save this paper or follow this series

Two Notes on Exchange Rate Rules and on the Real Value of External Debt

Contents:

Author Info

  • Rudiger Dornbusch

Abstract

This report presents two unrelated, short papers on exchange rate rules and on the real value of the external debt. The paper on exchange rate policy uses the Taylor model of overlapping, long term wage contracts to ask whether accommodating or PPP oriented exchange rate policies tend to stabilize output. In earlier work I had shown that exchange rate indexing, while destabilizing prices enhances the stability of output. The result is qualified hereby showing that the exchange rate not only affects aggregate demand directly but operates also, through the cost of imported intermediates, on the price level. It is shown that unless monetary policy is sufficiently accommodating this latter effect may dominate with the consequence that increased exchange rate indexation reduces output stability .The paper on the real value of external debt poses the question how to integrate external debt holdings in the traditional framework used to evaluate the effects on real income of changes in world prices. It is shown that integrating debt service liabilities in a comprehensive income measure makes real disposable income equal to the value of output less the real value of real interest payments on the external debt. Furthermore, with the CPI being the appropriate deflator for foreign debt, a rise in export prices raises income in proportion to exports while a rise in import prices lowers real income in proportion to Imports. The proper accounting of debt in a comprehensive income framework, noting the intertemporal budget constraints, thus restores the conventional treatment of the income effects of price changes.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w0567.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0567.

as in new window
Length:
Date of creation: Oct 1980
Date of revision:
Publication status: published as Dornbusch, Rudiger. "PPP Exchange Rate Rules and Macroeconomic Stability." Journal of Political Economy, Vol. 90, No. 1 (February 1982), pp. 158-165.
Handle: RePEc:nbr:nberwo:0567

Note: ITI IFM
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

References

References listed on IDEAS
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.:
as in new window
  1. Siegel, Jeremy J, 1979. "Inflation-Induced Distortions in Government and Private Saving Statistics," The Review of Economics and Statistics, MIT Press, vol. 61(1), pages 83-90, February.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:0567. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.