By J. Hairault
This significant new e-book builds upon the seminal paintings by means of Obsfeld and Rogoff, Foundations of overseas Macroeconomics and goals at delivering a coherent and glossy framework for pondering trade cost dynamics. With a variety of contributions, this ebook could be welcomed via the macroeconomics and fiscal group.
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Additional resources for Exchange Rate Dynamics: An Open Economy Macroeconomics Perspective (Routledge International Studies in Money and Banking)
The consumption differential returns to zero slowly over time as the stock of aggregate per capita net foreign assets accumulated in the periods of high productivity decreases toward zero. 2 The terms of trade. 3 Labor effort. 4 GDP. 5 Consumption. 4 The exchange rate and net foreign assets with exogenous money supplies We begin by analyzing exchange rate determination in a setup in which monetary policy is conducted through exogenous changes in money supply in both countries. This is the traditional framework for monetary policy and exchange rate determination of the Dornbusch (1976) and Obstfeld and Rogoff (1995) stickyprice models, and for the flexible-price models reviewed in Obstfeld and Rogoff (1996) and Obstfeld and Stockman (1985), among others.
It is not clear that the same result would hold in a sticky-price version of our model. In addition to the assumptions about interest rate setting, we retain the assumption that speculative bubbles in prices or the exchange rate are ruled out by the commitment to fractional backing mechanisms as in Obstfeld and Rogoff (1983). 40) in conjunction with the interest setting rules for the domestic and foreign economy. 75) with UIP and rearranging, we obtain t+1 − (1 + α2 ) t + α2 t−1 = α1 ytD + ξtD .
41) 20 Michele Cavallo and Fabio Ghironi Log-linear Euler equations imply that the consumption differential obeys D ctD = (1 + n)ct+1 − nCt+1D t+1 . 42) The ex ante real interest rate has no effect, because agents in both countries face identical real rates. The random walk result of the standard Obstfeld and Rogoff (1995) model for real variables is transparent here: if n = 0, that is, if no new agents with zero assets enter the economy, the consumption differential between the two countries follows a random walk.