国际货币和金融经济学ppt09
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bonds. • Because of the increase in demand for foreign
bonds, the demand for foreign currency rises. • All other things constant, the increased demand
for foreign currency causes the domestic currency to depreciate.
• Hence, wealth (W), is distributed across money (M) holdings, domestic bonds (B), and foreign bonds (B*).
Daniels and VanHoose
Monetary Approach
14
The Portfolio Approach
foreign currency.
Monetary Approach
19
• In contrast to the monetary approach, other financial assets are as important as domestic money.
Daniels and VanHoose
Monetary Approach
16
An Example
• Suppose the domestic monetary authorities increase the monetary base through an open market purchase of domestic securities.
• The portfolio approach postulates that the exchange value is determined by the quantities of domestic money and domestic and foreign financial securities demanded and the quantities supplied.
国际货币和金融经济学ppt09
2021/4/29
CSZ
1
Introduction
• The Monetary Approach focuses on the supply and demand of money and the money supply process.
• The monetary approach hypothesizes that BOP and exchange-rate movements result from changes in money supply and demand.
W M + B + SB*.
Daniels and VanHoose
Monetary Approach
15
The Portfolio Approach
• The portfolio approach postulates that the value of a nation’s currency is determined by quantities of these assets supplied and the quantities demanded.
Daniels and VanHoose
Monetary Approach
18
Spot Exchange Rate
Domestic currency units/foreign currency units
SFC
S2 S1
Daniels and VanHoose
DFC’ DFC
Q1 Q2
Quantity of
• The demand for domestic bonds falls relative to other financial assets.
Daniels and VanHoose
Monetary Approach
17
Example - Continued
• Households shift out of domestic bonds. • They substitute into domestic money and foreign
• Hence, the BOP must adjust to any monetary disequilibrium.
Daniels and VanHoose
Monetary Approach
6
Small Country Model
• Consider the impact of an increase in DC.
• A domestic household’s stock of wealth is valued in the domestic currency.
• Given a spot exchange rate, S, expressed as domestic currency units relative to foreign currency units, a wealth identity can be expressed as:
Monetary Approach
11
The Portfolio Approach to Exchange-Rate Determination
The Portfolio Approach
• The portfolio approach expands the monetary approach by including other financial assets.
Daniels and VanHoose
Monetary Approach
2
Small Country Example
A small country is modeled as: (1) Md = kPy (2) M = m(DC + FER) (3) P = SP* and, in equilibrium, (4) Md = M.
• As the domestic money supply increases, the domestic interest rate falls.
• With a lower interest, households are no longer satisfied with their portfolio allocation.
Monetary Approach
5
Small Country Model
• Fixed Exchange Rate Regime
• Under fixed exchange rates, the spot rate, S, is not allowed to vary.
• FER must vary to maintain the parity value of the spot rate.
• The small country illustrates the impact of changes in domestic credit, foreign price shocks, and changes in domestic real income.
Daniels and VanHoose
Daniels and VanHoose
Monetary Approach
13
The Portfolio Approach
• Assumes that individuals earn interest on the securities they hold, but not on money.
• Assumes that households have no incentive to hold the foreign currency.
Daniels and VanHoose
Monetary Approach
4
Small Country Model
(4) and (3) into (1) yields,
M = kP*Sy.
Sub in (2), (6) m(DC + FER) = kP*Sy.
Daniels and VanHoose
Daniels and VanHoose
Monetary Approach
10
Small Country Model
• The monetary approach postulates that changes in a nation’s balance of payments or exchange rate are a monetary phenomenon.
Daniels and VanHoose
Monetary Approach
3
Small Country Model
The balance of payments is defined as: (5) CA + KA = FER.
For example, if FER< 0, then CA + KA < 0, and the nation is running a balance of payments deficit.
• Again money supply will exceed money demand m(DC + FER) > kP*Sy.
• Now the domestic currency must depreciate to balance money supply and money demand m(DC + FER) = kP*Sy.
bonds, the demand for foreign currency rises. • All other things constant, the increased demand
for foreign currency causes the domestic currency to depreciate.
• Hence, wealth (W), is distributed across money (M) holdings, domestic bonds (B), and foreign bonds (B*).
Daniels and VanHoose
Monetary Approach
14
The Portfolio Approach
foreign currency.
Monetary Approach
19
• In contrast to the monetary approach, other financial assets are as important as domestic money.
Daniels and VanHoose
Monetary Approach
16
An Example
• Suppose the domestic monetary authorities increase the monetary base through an open market purchase of domestic securities.
• The portfolio approach postulates that the exchange value is determined by the quantities of domestic money and domestic and foreign financial securities demanded and the quantities supplied.
国际货币和金融经济学ppt09
2021/4/29
CSZ
1
Introduction
• The Monetary Approach focuses on the supply and demand of money and the money supply process.
• The monetary approach hypothesizes that BOP and exchange-rate movements result from changes in money supply and demand.
W M + B + SB*.
Daniels and VanHoose
Monetary Approach
15
The Portfolio Approach
• The portfolio approach postulates that the value of a nation’s currency is determined by quantities of these assets supplied and the quantities demanded.
Daniels and VanHoose
Monetary Approach
18
Spot Exchange Rate
Domestic currency units/foreign currency units
SFC
S2 S1
Daniels and VanHoose
DFC’ DFC
Q1 Q2
Quantity of
• The demand for domestic bonds falls relative to other financial assets.
Daniels and VanHoose
Monetary Approach
17
Example - Continued
• Households shift out of domestic bonds. • They substitute into domestic money and foreign
• Hence, the BOP must adjust to any monetary disequilibrium.
Daniels and VanHoose
Monetary Approach
6
Small Country Model
• Consider the impact of an increase in DC.
• A domestic household’s stock of wealth is valued in the domestic currency.
• Given a spot exchange rate, S, expressed as domestic currency units relative to foreign currency units, a wealth identity can be expressed as:
Monetary Approach
11
The Portfolio Approach to Exchange-Rate Determination
The Portfolio Approach
• The portfolio approach expands the monetary approach by including other financial assets.
Daniels and VanHoose
Monetary Approach
2
Small Country Example
A small country is modeled as: (1) Md = kPy (2) M = m(DC + FER) (3) P = SP* and, in equilibrium, (4) Md = M.
• As the domestic money supply increases, the domestic interest rate falls.
• With a lower interest, households are no longer satisfied with their portfolio allocation.
Monetary Approach
5
Small Country Model
• Fixed Exchange Rate Regime
• Under fixed exchange rates, the spot rate, S, is not allowed to vary.
• FER must vary to maintain the parity value of the spot rate.
• The small country illustrates the impact of changes in domestic credit, foreign price shocks, and changes in domestic real income.
Daniels and VanHoose
Daniels and VanHoose
Monetary Approach
13
The Portfolio Approach
• Assumes that individuals earn interest on the securities they hold, but not on money.
• Assumes that households have no incentive to hold the foreign currency.
Daniels and VanHoose
Monetary Approach
4
Small Country Model
(4) and (3) into (1) yields,
M = kP*Sy.
Sub in (2), (6) m(DC + FER) = kP*Sy.
Daniels and VanHoose
Daniels and VanHoose
Monetary Approach
10
Small Country Model
• The monetary approach postulates that changes in a nation’s balance of payments or exchange rate are a monetary phenomenon.
Daniels and VanHoose
Monetary Approach
3
Small Country Model
The balance of payments is defined as: (5) CA + KA = FER.
For example, if FER< 0, then CA + KA < 0, and the nation is running a balance of payments deficit.
• Again money supply will exceed money demand m(DC + FER) > kP*Sy.
• Now the domestic currency must depreciate to balance money supply and money demand m(DC + FER) = kP*Sy.