IDEAS home Printed from https://ideas.repec.org/a/eee/moneco/v9y1982i1p87-98.html

The capitalization of income streams and the effects of open-market policy under fixed exchange rates

Author

Listed:
  • Obstfeld, Maurice

Abstract

This paper investigates the long- and short-run neutrality of open-market monetary policy in a world of fixed exchange rates and imperfect substitutability between bonds denominated in different currencies. Using an illustrative portfolio-balance model, it shows that when the public discounts the future tax liabilities associated with the national debt and the central bank supports the exchange rate by trading non-interest-bearing foreign assets, open-market policy has a short-run effect, but no long-run effect, on the domestic price level and interest rate. When the foreign-exchange intervention assets earn interest that is rebated to and capitalized by the public, open-market policy loses even its short-run efficacy -- the capital-account offset to monetary policy is complete.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Obstfeld, Maurice, 1982. "The capitalization of income streams and the effects of open-market policy under fixed exchange rates," Journal of Monetary Economics, Elsevier, vol. 9(1), pages 87-98.
    • Handle: RePEc:eee:moneco:v:9:y:1982:i:1:p:87-98
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/0304-3932(82)90052-6
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vincent Reinhart, 2010. "Monetary Policy in a Low-Interest-Rate Environment," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 6(1), pages 346-353.
    2. Obstfeld, Maurice, 1983. "Exchange rates, inflation, and the sterilization problem: Germany, 1975-1981," European Economic Review, Elsevier, vol. 21(1-2), pages 161-189.
    3. Backus, David K. & Kehoe, Patrick J., 1989. "On the denomination of government debt : A critique of the portfolio balance approach," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 359-376, May.
    4. Kumhof, Michael, 2018. "On the theory of international currency portfolios," European Economic Review, Elsevier, vol. 101(C), pages 376-396.
    5. Maurice Obstfeld, 1990. "The Effectiveness of Foreign-Exchange Intervention: Recent Experience, 1985- 1988," NBER Chapters, in: International Policy Coordination and Exchange Rate Fluctuations, pages 197-246, National Bureau of Economic Research, Inc.
    6. Dale Henderson, 1984. "Exchange Market Intervention Operations: Their Role in Financial Policy and Their Effects," NBER Chapters, in: Exchange Rate Theory and Practice, pages 359-406, National Bureau of Economic Research, Inc.
    7. Patrick Artus, 1988. "Dynamique des actifs financiers et dévaluations avec endettement extérieur," Revue Économique, Programme National Persée, vol. 39(5), pages 973-998.
    8. Benjamin Carton, 2011. "The Impossible Trinity Revised: An Application to China," Working Papers 2011-27, CEPII research center.
    9. Christelle Lecourt & Helene Raymond, 2006. "Central bank interventions in industrialized countries: a characterization based on survey results," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(2), pages 123-138.
    10. Stijn van Nieuwerburgh & Michael Kumhof, 2005. "Monetary Policy in an Equilibrium Portfolio Balance Model," 2005 Meeting Papers 851, Society for Economic Dynamics.
    11. Kumhof, Michael, 2010. "On the theory of sterilized foreign exchange intervention," Journal of Economic Dynamics and Control, Elsevier, vol. 34(8), pages 1403-1420, August.
    12. Obstfeld, Maurice, 1980. "Imperfect asset substitutability and monetary policy under fixed exchange rates," Journal of International Economics, Elsevier, vol. 10(2), pages 177-200, May.
    13. Mr. Michael Kumhof, 2009. "International Currency Portfolios," IMF Working Papers 2009/048, International Monetary Fund.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:moneco:v:9:y:1982:i:1:p:87-98. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505566 .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.