国际金融第十二章
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In Chapter 11, we talked about that one nation’s central bank intervened in the foreign exchange market to keep the rate of exchange for the two nation’s currencies fixed. Now, let’s apply that two-country example to a setting with a floating exchange rate.
Ⅱ.Floating Ex. Rates and Perfect Capital Mibility
In (a), amount of money increasing leads to rightward shift of LM, which induces a decline in the interest rate. That causes capital outflows. The resulting BOP deficit causes domestic currency to depreciate. This leads to higher export and less import. So, IS shift rightward. In (b), Increasing fiscal expenditure shift IS to rightward. The resulting rise in the interest rate induces inflows that lead to BOP surplus. This leads to doc. currency to appreciate. That leads to export decline and import increase, Daniels and VanHoose Econoic Policy 11 causing IS to return back.
Daniels and VanHoose Econoic Policy 6
• Exchange-Rate Variations and its Effect on the BP Schedule
The nation’s currency depreciates, the export will increase. It will generate an improvement in the trade balance that results in a balance-of-payments surplus at point A. This means that for the balance of payments to return to equilibrium, the nation’s real income must increase to a level such as y2, at which sufficient import spending takes place to return the trade balance to its previous level. So, we may conclude that a currency depreciation causes the BP schedule so Daniels and VanHoose Econoic Policy shift to the right.
Maximum Effect
Minimum Effect
Daniels and VanHoose
Econoic Policy
12
Economic Policies with Perfect Capital Mobility and a Floating Exchange Rate: A Two-Country Example
Daniels and VanHoose Econoic Policy 4
Ⅰ.Floating Exchange Rates and Imperfect Capital Mobility
• If choosing fixed ex. Rate, (1)central bank has to intervene the foreign market with exchange reserves, and (2)it has to decide to sterilize the intervention. • By permitting the ex. Rate to float, central bank relieves itself from these burdens. • But it will increase the potential for monetary policy actions. And the fiscal Daniels and VanHoose policy will lose someEconoic potency. its Policy
9
Fiscal Policy under Floating Exchange Rate
Increase in fiscal expenditure causes initial rightward shift in the IS, which leads to increase in the nominal interest rate and real income. In (a) (low capital mobility), greater import spending more than offsets small capital inflow in causing BOP deficit. This induces domestic currency depreciate which shifts IS and BP to the right, leading to final equilibrium. In (b) (high capital mobility) larger inflows more than offsets greater imports in causing BOP surplus, which leads to appreciation of domestic currency. Appreciation of doc. currency shifts IS and BP leftward, leading to a final Daniels and VanHoose Econoic Policy 10 equilibrium.
2
• What is the basic economic efficiency trade-off faced in choosing between fixed and floating exchange rates? • How does the choice between fixed and floating exchange rates depend in part on its implications for economic stability and monetary policy autonomy?
5
The Effect of Exchange-Rate Variations in the IS-LM-BP
• Exchange-Rate Variation and its Effect on the IS Schedule
When domestic currency depreciates, the import will contract, and the export expend. This generate a rise in the nation’s autonomous expenditures at any given nominal interest rate. Thus, real income y will increase.
Daniels and VanHoose Econoic Policy
3
• What is the effect of monetary and fiscal policy on a nation under floating exchange rate. • What are the advantages and disadvantages of a floating exchange rate for a nation?
Real-Income Effects with Perfect Capital Mobility and Fixed Versus Flexible Exchange Rates
Exchange-Rate Setting Fixed Exchange Rate Flexible Exchange Rate Monetary Policy Effect Minimum Effect Fiscal Policy Effect Maximum Effect
Economic Policy with Floating Exchange Rates
Main Topics in the Chapter:
• How do monetary and fiscal policy actions affect a nation’s real income under floating exchange rቤተ መጻሕፍቲ ባይዱte? • How does perfect capital mobility influence the relative effectiveness of monetary and fiscal policy actions in a small open country that permits its exchange rates to float? • In a two-country setting with a floating exchange rate, to what extent can policy actions in one nation influence economic activity in the other nation? Daniels and VanHoose Econoic Policy
7
The Effects of a Currency Depreciation on the IS and BP Schedules
Daniels and VanHoose
Econoic Policy
8
Monetary Policy under Floating Exchange Rates
Interest-rate results in the increase of money stock. It causes LM to shift rightward in (a) and (b). It also causes increase of import and capital outflow and decrease of export and capital inflow. It causes domestic currency to depreciate. As a result, the IS and BP shift rightward. Finally, balance-of-payment Daniels and VanHoose Econoic Policy equilibrium is reattained in (a) and (b) at point C.
Ⅱ.Floating Ex. Rates and Perfect Capital Mibility
In (a), amount of money increasing leads to rightward shift of LM, which induces a decline in the interest rate. That causes capital outflows. The resulting BOP deficit causes domestic currency to depreciate. This leads to higher export and less import. So, IS shift rightward. In (b), Increasing fiscal expenditure shift IS to rightward. The resulting rise in the interest rate induces inflows that lead to BOP surplus. This leads to doc. currency to appreciate. That leads to export decline and import increase, Daniels and VanHoose Econoic Policy 11 causing IS to return back.
Daniels and VanHoose Econoic Policy 6
• Exchange-Rate Variations and its Effect on the BP Schedule
The nation’s currency depreciates, the export will increase. It will generate an improvement in the trade balance that results in a balance-of-payments surplus at point A. This means that for the balance of payments to return to equilibrium, the nation’s real income must increase to a level such as y2, at which sufficient import spending takes place to return the trade balance to its previous level. So, we may conclude that a currency depreciation causes the BP schedule so Daniels and VanHoose Econoic Policy shift to the right.
Maximum Effect
Minimum Effect
Daniels and VanHoose
Econoic Policy
12
Economic Policies with Perfect Capital Mobility and a Floating Exchange Rate: A Two-Country Example
Daniels and VanHoose Econoic Policy 4
Ⅰ.Floating Exchange Rates and Imperfect Capital Mobility
• If choosing fixed ex. Rate, (1)central bank has to intervene the foreign market with exchange reserves, and (2)it has to decide to sterilize the intervention. • By permitting the ex. Rate to float, central bank relieves itself from these burdens. • But it will increase the potential for monetary policy actions. And the fiscal Daniels and VanHoose policy will lose someEconoic potency. its Policy
9
Fiscal Policy under Floating Exchange Rate
Increase in fiscal expenditure causes initial rightward shift in the IS, which leads to increase in the nominal interest rate and real income. In (a) (low capital mobility), greater import spending more than offsets small capital inflow in causing BOP deficit. This induces domestic currency depreciate which shifts IS and BP to the right, leading to final equilibrium. In (b) (high capital mobility) larger inflows more than offsets greater imports in causing BOP surplus, which leads to appreciation of domestic currency. Appreciation of doc. currency shifts IS and BP leftward, leading to a final Daniels and VanHoose Econoic Policy 10 equilibrium.
2
• What is the basic economic efficiency trade-off faced in choosing between fixed and floating exchange rates? • How does the choice between fixed and floating exchange rates depend in part on its implications for economic stability and monetary policy autonomy?
5
The Effect of Exchange-Rate Variations in the IS-LM-BP
• Exchange-Rate Variation and its Effect on the IS Schedule
When domestic currency depreciates, the import will contract, and the export expend. This generate a rise in the nation’s autonomous expenditures at any given nominal interest rate. Thus, real income y will increase.
Daniels and VanHoose Econoic Policy
3
• What is the effect of monetary and fiscal policy on a nation under floating exchange rate. • What are the advantages and disadvantages of a floating exchange rate for a nation?
Real-Income Effects with Perfect Capital Mobility and Fixed Versus Flexible Exchange Rates
Exchange-Rate Setting Fixed Exchange Rate Flexible Exchange Rate Monetary Policy Effect Minimum Effect Fiscal Policy Effect Maximum Effect
Economic Policy with Floating Exchange Rates
Main Topics in the Chapter:
• How do monetary and fiscal policy actions affect a nation’s real income under floating exchange rቤተ መጻሕፍቲ ባይዱte? • How does perfect capital mobility influence the relative effectiveness of monetary and fiscal policy actions in a small open country that permits its exchange rates to float? • In a two-country setting with a floating exchange rate, to what extent can policy actions in one nation influence economic activity in the other nation? Daniels and VanHoose Econoic Policy
7
The Effects of a Currency Depreciation on the IS and BP Schedules
Daniels and VanHoose
Econoic Policy
8
Monetary Policy under Floating Exchange Rates
Interest-rate results in the increase of money stock. It causes LM to shift rightward in (a) and (b). It also causes increase of import and capital outflow and decrease of export and capital inflow. It causes domestic currency to depreciate. As a result, the IS and BP shift rightward. Finally, balance-of-payment Daniels and VanHoose Econoic Policy equilibrium is reattained in (a) and (b) at point C.