Domestic and Foreign Disturbances in an Optimizing Model of Exchange- Rate Determination

Abstract

This 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 thereafter approaches gradually.The implications of these results for exchange rate adjustment and the insulation properties of flexible exchange rates are discussed.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 30 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.