Creator: Backus, David. and Kehoe, Patrick J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 359 Abstract:
We show that some classes of sterilized interventions have no effect on equilibrium prices or quantities. The proof does not depend on complete markets, infinitely-lived agents, Ricardian equivalence, monetary neutrality, or the law of one price. Moreover, regressions of exchange rates or interest differentials on variables measuring the currency composition of the debt may contain no information, in our theoretical economy, about the effectiveness of such interventions. Another class of interventions requires simultaneous changes in monetary and fiscal policy; their effects depend, generally, on the influence of tax distortions, government spending, and money supplies on economic behavior. We suggest that in applying the portfolio balance approach to the study of intervention, lack 01 explicit modeling of these features is a serious flaw.
Keyword: Debts, external and Foreign exchange law and legislation Subject (JEL): F41 - Macroeconomic aspects of international trade and finance - Open economy macroeconomics, F31 - International finance - Foreign exchange, and H30 - Fiscal policies and behavior of economic agents - General
Creator: Miller, Preston J. and Todd, Richard M. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 481 Abstract:
This paper investigates the effects of changes in a country's monetary policies on its economy and the welfare of its citizens and those of other countries. Each country is populated by two-period lived overlapping agents who reside in either a home service sector or a world-traded good sector. Policy effects are transmitted through changes in the real interest rate, relative prices, and price levels. Welfare effects are sometimes dominated by relative price movements and can thus be opposite of those found in one-good models. Simulation of dynamic paths also reveals that welfare effects for some types of agents reverse between those born in immediate post-shock periods and those born later.
Keyword: Real interest rates, Relative prices, Exchange rates, Prices, and Monetary policy Subject (JEL): E52 - Monetary policy, central banking, and the supply of money and credit - Monetary policy, F31 - International finance - Foreign exchange, and E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation
Creator: Kareken, John H. and Wallace, Neil. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 153 Abstract:
In this paper we consider a particular international economic policy regime: the laissez-faire regime, the distinguishing features of which are unrestricted portfolio choice and floating exchange rates. And as we show, that regime, although favored by many economists, is not economically feasible. It does not have a determinate equilibrium. That is an implication of an over-lapping-generations model. But as we argue in the paper, that is no reason for doubting the indeterminacy of the laissez-faire regime equilibrium.
Keyword: Overlapping generations, Laissez-faire regime, International economic policy, and Foreign exchange rate Subject (JEL): F31 - International finance - Foreign exchange and D53 - General equilibrium and disequilibrium - Financial markets
Creator: King, Robert G. (Robert Graham), Wallace, Neil., and Weber, Warren E. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 307 Abstract:
This paper shows that there can be equilibria in which exchange rates display randomness unrelated to fundamentals. This is demonstrated in the context of a two currency, one good model, with three agent types and cash-in-advance constraints. A crucial feature is that the type i agents, for i=l, 2, must satisfy a cash—in-advance constraint by holding currency i, while type 3 agents can satisfy it by holding either currency. It is shown that real allocations vary across the multiple equilibria if markets for hedging exchange risk do not exist and that the randomness is innocuous if complete markets exist.
Keyword: Foreign exchange rates, Macroeconomics, and Currencies Subject (JEL): E00 - Macroeconomics and monetary economics - General - General and F31 - International finance - Foreign exchange