Macroeconomic Policy, Exchange-Rate Dynamics, and Optimal Asset Accumulation
21 Pages Posted: 9 Jun 2004 Last revised: 22 Aug 2022
Date Written: December 1980
Abstract
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.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Exchange-Rate Dynamics and Optimal Asset Accumulation Revisited
-
Comment on T. J. Sargent and N. Wallace: "Some Unpleasant Monetarist Arithmetic"
-
Asset Accumulation, Fertility Choice and Nondegenerate Dynamics in a Small Open Economy
-
Dollarization: An Irreversible Decision
By Roger Craine
-
Population Dynamics and Fertility Declines in Croatia
By Maja Biljan-august and Ana Štambuk