Imperfect Asset Substitutability and Monetary Policy under Fixed Exchange Rates
This paper presents a long-run model of the open economy in a world of fixed exchange rates and imperfect substitutability between bonds denominated in different currencies. The model explicitly accounts for the wealth flow accompanying current-account imbalance and for the flow of interest payments associated with international lending. Both the dynamic and steady-state implications of the model are quite different from those of models that specify the capital account as a continuing flow responding to the level of interest rates. In particular, we find that when there exists outside government debt, open-market policy is not in general neutral in the long run. We also find conditions under which the central bank is able to hold the domestic price level constant in the face of an inflationary disturbance from abroad without exhausting, in the long run, its stock of domestic assets.
|Date of creation:||Jun 1980|
|Date of revision:|
|Publication status:||published as Obstfeld, Maurice. "Imperfect Asset Substitutability and Monetary Policy under Fixed Exchange Rates." Journal of International Economics, Vol. 10, No. 2, (May 1980), pp. 177-200.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
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.:
- Robert A. Mundell, 1962. "The Appropriate Use of Monetary and Fiscal Policy for Internal and External Stability," IMF Staff Papers, Palgrave Macmillan, vol. 9(1), pages 70-79, March.
- Tsiang, S C, 1975. "The Dynamics of International Capital Flows and Internal and External Balance," The Quarterly Journal of Economics, MIT Press, vol. 89(2), pages 195-214, May.
- 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.
- Maurice Obstfeld, 1980. "The Capitalization of Income Streams and the Effects of Open Market Policy under Fixed Exchange Rates," NBER Working Papers 0528, National Bureau of Economic Research, Inc.
- Robert P. Flood, 1977. "Growth, Prices, and the Balance of Payments," Canadian Journal of Economics, Canadian Economics Association, vol. 10(2), pages 193-207, May.
- Barro, Robert J, 1974.
"Are Government Bonds Net Wealth?,"
Journal of Political Economy,
University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
- Johnson, Harry G, 1974. "Major Issues in Monetary Economics," Oxford Economic Papers, Oxford University Press, vol. 26(2), pages 212-25, July.
- Henderson, Dale W, 1977. "Modeling the Interdependence of National Money and Capital Markets," American Economic Review, American Economic Association, vol. 67(1), pages 190-99, February.
- Swoboda, Alexander K, 1973. "Monetary Policy under Fixed Exchange Rates: Effectiveness, the Speed of Adjustment and Proper Use," Economica, London School of Economics and Political Science, vol. 40(158), pages 136-54, May.
- Kouri, Pentti J K & Porter, Michael G, 1974. "International Capital Flows and Portfolio Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 443-67, May/June.
- Willet, Thomas D & Forte, Francesco, 1969. "Interest Rate Policy and External Balance," The Quarterly Journal of Economics, MIT Press, vol. 83(2), pages 242-62, May.
- Fratianni, Michele, 1976. "On the effectiveness of monetary policy under fixed rates of exchange," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 63-79, January.
- Levin, Jay H, 1972. "International Capital Mobility and the Assignment Problem," Oxford Economic Papers, Oxford University Press, vol. 24(1), pages 54-67, March.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:0485. 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 references are entirely missing, you can add them using this form.