Macroeconomic Policy, Exchange-Rate Dynamics, and Optimal Asset Accumulation
The paper develops a model of exchange-rate and current-account determination for a small economy peopled by infinitely lived, utility-maximizing households. In this setting, a central-bank purchase of foreign exchange has no real effects when central-bank foreign reserves earn interest at the world rate and the proceeds are returned to the public. In contrast, an increase in the monetary growth rate does have real effects, even in the long run. The model developed here implies that an increase in government spending may lead to a surplus on current account. The external adjustment process predicted by the model is one in which consumption, real balances, anti external assets all rise or fall simultaneously.
|Date of creation:||Dec 1980|
|Date of revision:|
|Publication status:||published as Obstfeld, Maurice. "Macroeconomic Policy, Exchange-Rate Dynamics, and Optimal Asset Accumulation." Journal of Political Economy, Vol. 89, No. 6, (December 1981), pp. 1142-1161.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
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- Alan C. Stockman, 1978.
"A Theory of Exchange Rate Determination,"
UCLA Economics Working Papers
113, UCLA Department of Economics.
- Findlay, Ronald, 1978. "An "Austrian" Model of International Trade and Interest Rate Equalization," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 989-1007, December.
- Calvo, Guillermo A & Rodriguez, Carlos Alfredo, 1977. "A Model of Exchange Rate Determination under Currency Substitution and Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 617-25, June.
- Calvo, Guillermo A, 1979. "On Models of Money and Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(1), pages 83-103, February.
- Kouri, Pentti J K, 1976. " The Exchange Rate and the Balance of Payments in the Short Run and in the Long Run: A Monetary Approach," Scandinavian Journal of Economics, Wiley Blackwell, vol. 78(2), pages 280-304.
- Calvo, Guillermo & Findlay, Ronald, 1978. "On the optimal acquisition of foreign capital through investment of oil export revenues," Journal of International Economics, Elsevier, vol. 8(4), pages 513-524, November.
- Fischer, Stanley, 1979. "Capital Accumulation on the Transition Path in a Monetary Optimizing Model," Econometrica, Econometric Society, vol. 47(6), pages 1433-39, November.
- Brock, William A, 1974. "Money and Growth: The Case of Long Run Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(3), pages 750-77, October.
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