Download PDF by J. Hairault: Exchange Rate Dynamics: An Open Economy Macroeconomics

By J. Hairault

ISBN-10: 0415298776

ISBN-13: 9780415298773

This significant new booklet builds upon the seminal paintings by way of Obsfeld and Rogoff, Foundations of overseas Macroeconomics and goals at delivering a coherent and glossy framework for puzzling over alternate cost dynamics. With a variety of contributions, this publication might be welcomed by means of the macroeconomics and monetary group.

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Additional resources for Exchange Rate Dynamics: An Open Economy Macroeconomics Perspective (Routledge International Studies in Money and Banking)

Example text

31 As we observed before, ηcD B > 0 for most plausible combinations of parameter values. ) It follows that ηy D B < 0: ceteris paribus, accumulation of net foreign assets causes domestic agents to supply less labor than foreign, the domestic real wage is higher than abroad (ηwD B > 0), the domestic terms of trade improve (ηRP D B > 0), and domestic GDP falls relative to foreign. Hence, ηεB ≥ 0. If central banks do not react to GDP movements (α1 = 0), the exchange rate is not affected by asset accumulation (ηεB = 0).

When n > 0, the Euler equation is adjusted for consumption of a newborn generation in the first period of its life. 43) where h is the deviation from the steady state of a household’s human wealth. 44) is determined by D D hD t = βht+1 + (1 − β)wt . 46) mD t = ct − 1 − β t+1 D D D where mD t ≡ Mt − P t = Mt − t . 3 Firms The GDP differential obeys D D ytD = RPD t + Lt + Z t . The relative price differential reflects relative marginal cost D D RPD t = wt − Zt . 48) The difference between domestic and foreign labor demands depends on relative marginal cost and productivity LtD = −ω(wtD − ZtD ) − ZtD .

4). The increase in labor employed in production and higher productivity more than offset the depreciation of the terms of trade, so that yD rises above 0 on impact, and remains there until the wealth effect of net foreign assets on labor supply is sufficiently large to lower yD below 0, from where it returns to the steady state over time. 5). Consistent with intertemporal optimization, the dynamics of consumption are smoother than those of GDP. A more persistent shock has a larger effect on consumption at t = 0, as agents anticipate the fact that the shock will persist in the future.

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Exchange Rate Dynamics: An Open Economy Macroeconomics Perspective (Routledge International Studies in Money and Banking) by J. Hairault

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