Domestic and Foreign Disturbances in an Optimizing Model of Exchange- Rate Determination
AbstractThis paper analyzes the effects of various disturbances of domestic and foreign origin in a small open economy under imperfect capital mobility in which the behavioral relationships are derived from optimization by the private sector. In this model the domestic economy jumps instantaneously to its new equilibrium following a change in either the domestic monetary growth rate or domestic fiscal policy. In response to a disturbance in either the foreign interest rate or inflation rate,the economy undergoes an initial partial jump towards its new equilibrium,which it there after approaches gradually. The implications of these results for exchange rate adjustment and the insulation properties of flexible exchange rates are discussed.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1407.
Date of creation: Oct 1985
Date of revision:
Publication status: published as Journal of International Money and Finance, Vol. 4, No. 1, pp. 151-171,(1985).
Note: ITI IFM
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Other versions of this item:
- Turnovsky, Stephen J., 1985. "Domestic and foreign disturbances in an optimizing model of exchange-rate determination," Journal of International Money and Finance, Elsevier, vol. 4(1), pages 151-171, March.
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