第12章_重访开放经济

TheOpenEconomyRevisited theMundell FlemingModelandtheExchange RateRegime 12 CHAPTER12TheOpenEconomyRevisited Inthischapter youwilllearn theMundell Flemingmodel IS LMforthesmallopeneconomy causesandeffectsofinterestratedifferentialsargumentsforfixedvs floatingexchangerateshowtoderivetheaggregatedemandcurveforasmallopeneconomy CHAPTER12TheOpenEconomyRevisited 12 1TheMundell Flemingmodel Keyassumption Smallopeneconomywithperfectcapitalmobility r r Goodsmarketequilibrium theIS curve wheree nominalexchangerate foreigncurrencyperunitdomesticcurrency CHAPTER12TheOpenEconomyRevisited TheIS curve Goodsmarketeq m TheIS curveisdrawnforagivenvalueofr Intuitionfortheslope CHAPTER12TheOpenEconomyRevisited FromKeynesianCrosstoISCurve CHAPTER12TheOpenEconomyRevisited TheLM curve Moneymarketeq m TheLM curveisdrawnforagivenvalueofr isverticalbecause givenr thereisonlyonevalueofYthatequatesmoneydemandwithsupply regardlessofe CHAPTER12TheOpenEconomyRevisited TheLMCurve CHAPTER12TheOpenEconomyRevisited EquilibriumintheMundell Flemingmodel equilibriumexchangerate equilibriumlevelofincome CHAPTER12TheOpenEconomyRevisited Floating fixedexchangerates Inasystemoffloatingexchangerates eisallowedtofluctuateinresponsetochangingeconomicconditions Incontrast underfixedexchangerates thecentralbanktradesdomesticforforeigncurrencyatapredeterminedprice Next policyanalysis inafloatingexchangeratesysteminafixedexchangeratesystem CHAPTER12TheOpenEconomyRevisited 12 2Fiscalpolicyunderfloatingexchangerates Y1 Atanygivenvalueofe afiscalexpansionincreasesY shiftingIS totheright Results e 0 Y 0 CHAPTER12TheOpenEconomyRevisited Lessonsaboutfiscalpolicy Inasmallopeneconomywithperfectcapitalmobility fiscalpolicycannotaffectrealGDP Crowdingout closedeconomy Fiscalpolicycrowdsoutinvestmentbycausingtheinterestratetorise smallopeneconomy Fiscalpolicycrowdsoutnetexportsbycausingtheexchangeratetoappreciate CHAPTER12TheOpenEconomyRevisited Monetarypolicyunderfloatingexchangerates Y2 AnincreaseinMshiftsLM rightbecauseYmustrisetorestoreeq minthemoneymarket Results e0 CHAPTER12TheOpenEconomyRevisited Lessonsaboutmonetarypolicy Monetarypolicyaffectsoutputbyaffectingthecomponentsofaggregatedemand closedeconomy M r I Ysmallopeneconomy M e NX YExpansionarymon policydoesnotraiseworldagg demand itmerelyshiftsdemandfromforeigntodomesticproducts So theincreasesindomesticincomeandemploymentareattheexpenseoflossesabroad CHAPTER12TheOpenEconomyRevisited Tradepolicyunderfloatingexchangerates Atanygivenvalueofe atarifforquotareducesimports increasesNX andshiftsIS totheright Results e 0 Y 0 CHAPTER12TheOpenEconomyRevisited Lessonsabouttradepolicy Importrestrictionscannotreduceatradedeficit EventhoughNXisunchanged thereislesstrade thetraderestrictionreducesimports theexchangerateappreciationreducesexports Lesstrademeansfewer gainsfromtrade CHAPTER12TheOpenEconomyRevisited Lessonsabouttradepolicy cont Importrestrictionsonspecificproductssavejobsinthedomesticindustriesthatproducethoseproducts butdestroyjobsinexport producingsectors Hence importrestrictionsfailtoincreasetotalemployment Also importrestrictionscreate sectoralshifts whichcausefrictionalunemployment CHAPTER12TheOpenEconomyRevisited 12 3Fixedexchangerates Underfixedexchangerates thecentralbankstandsreadytobuyorsellthedomesticcurrencyforforeigncurrencyatapredeterminedrate IntheMundell Flemingmodel thecentralbankshiftstheLM curveasrequiredtokeepeatitspreannouncedrate Thissystemfixesthenominalexchangerate Inthelongrun whenpricesareflexible therealexchangeratecanmoveevenifthenominalrateisfixed CHAPTER12TheOpenEconomyRevisited Fiscalpolicyunderfixedexchangerates Y1 Underfloatingrates afiscalexpansionwouldraisee Results e 0 Y 0 Y2 Tokeepefromrising thecentralbankmustselldomesticcurrency whichincreasesMandshiftsLM right Underfloatingrates fiscalpolicyisineffectiveatchangingoutput Underfixedrates fiscalpolicyisveryeffectiveatchangingoutput CHAPTER12TheOpenEconomyRevisited Monetarypolicyunderfixedexchangerates AnincreaseinMwouldshiftLM rightandreducee Topreventthefalline thecentralbankmustbuydomesticcurrency whichreducesMandshiftsLM backleft Results e 0 Y 0 Underfloatingrates monetarypolicyisveryeffectiveatchangingoutput Underfixedrates monetarypolicycannotbeusedtoaffectoutput CHAPTER12TheOpenEconomyRevisited Tradepolicyunderfixedexchangerates Arestrictiononimportsputsupwardpressureone Results e 0 Y 0 Y2 Tokeepefromrising thecentralbankmustselldomesticcurrency whichincreasesMandshiftsLM right Underfloatingrates importrestrictionsdonotaffectYorNX Underfixedrates importrestrictionsincreaseYandNX But thesegainscomeattheexpenseofothercountries thepolicymerelyshiftsdemandfromforeigntodomesticgoods CHAPTER12TheOpenEconomyRevisited SummaryofpolicyeffectsintheMundell Flemingmodel CHAPTER12TheOpenEconomyRevisited ProblemsandApplications 1 UsetheMundell Flemingmodeltopredictwhatwouldhappentoaggregateincome theexchangerate andthetradebalanceunderbothfloatingandfixedexchangeratesinresponsetoeachofthefollowingshocks a Afallinconsumerconfidenceaboutthefutureinducesconsumerstospendlessandsavemore b TheintroductionofastylishlineofToyotasmakessomeconsumerspreferforeigncarsoverdomesticcars CHAPTER12TheOpenEconomyRevisited a Afallinconsumerconfidenceaboutthefutureinducesconsumerstospendlessandsavemore floatingexchangeratesTheexchangeratefalls depreciates whichcausesanincreaseinthetradebalanceequaltothefallinconsumption CHAPTER12TheOpenEconomyRevisited fixedexchangerates Thecentralbankbuysthedomesticcurrencythatinvestorsseektoexchange andprovidesforeigncurrency OutputfallsTheexchangeratedoesnotchange sothetradebalancedoesnotchange CHAPTER12TheOpenEconomyRevisited b TheintroductionofastylishlineofToyotasmakessomeconsumerspreferforeigncarsoverdomesticcars floatingexchangeratesoutputdoesnotchange whiletheexchangeratefalls depreciates Thetradebalancedoesnotchangeeither despitethefallintheexchangerate CHAPTER12TheOpenEconomyRevisited fixedexchangerates Thecentralbankbuysdollarsandsellsforeignexchangetokeepefixed Asaresult outputfalls Thetradebalancefalls becausetheshiftinthenetexportsschedulemeansthatnetexportsarelowerforanygivenleveloftheexchangerate CHAPTER12TheOpenEconomyRevisited 12 4Interest ratedifferentials Tworeasonswhyrmaydifferfromr countryriskInsomelessdevelopedcountries itisplausibletofearthatarevolutionorotherpoliticalupheavalmightleadtoadefaultonloanrepayments Borrowersinsuchcountriesoftenhavetopayhigherinterestratestocompensatelendersforthisrisk expectedexchangeratechangesIfacountry sexchangerateisexpectedtofall thenitsborrowersmustpayahigherinterestratetocompensatelendersfortheexpectedcurrencydepreciation CHAPTER12TheOpenEconomyRevisited DifferentialsintheM Fmodel where isariskpremium assumedexogenous SubstitutetheexpressionforrintotheIS andLM equations CHAPTER12TheOpenEconomyRevisited Theeffectsofanincreasein IS shiftsleft because r I LM shiftsright because r M P d soYmustrisetorestoremoneymarketeq m Results e0 Y2 CHAPTER12TheOpenEconomyRevisited Thefallineisintuitive Anincreaseincountryriskoranexpecteddepreciationmakesholdingthecountry scurrencylessattractive Note anexpecteddepreciationisaself fulfillingprophecy TheincreaseinYoccursbecausetheboostinNX fromthedepreciation isgreaterthanthefallinI fromtheriseinr Theeffectsofanincreasein CHAPTER12TheOpenEconomyRevisited Whyincomemightnotrise Thecentralbankmaytrytopreventthedepreciationbyreducingthemoneysupply Thedepreciationmightboostthepriceofimportsenoughtoincreasethepricelevel whichwouldreducetherealmoneysupply Consumersmightrespondtotheincreasedriskbyholdingmoremoney EachoftheabovewouldshiftLM leftward CHAPTER12TheOpenEconomyRevisited CASESTUDY TheMexicanpesocrisis CHAPTER12TheOpenEconomyRevisited CASESTUDY TheMexicanpesocrisis CHAPTER12TheOpenEconomyRevisited ThePesocrisisdidn tjusthurtMexico U S goodsmoreexpensivetoMexicansU S firmslostrevenueHundredsofbankruptciesalongU S MexicanborderMexicanassetsworthlessindollarsReducedwealthofmillionsofU S citizens CHAPTER12TheOpenEconomyRevisited Understandingthecrisis Intheearly1990s Mexicowasanattractiveplaceforforeigninvestment During1994 politicaldevelopmentscausedanincreaseinMexico sriskpremium peasantuprisinginChiapasassassinationofleadingpresidentialcandidateAnotherfactor TheFederalReserveraisedU S interestratesseveraltimesduring1994topreventU S inflation r 0 CHAPTER12TheOpenEconomyRevisited Understandingthecrisis Theseeventsputdownwardpressureonthepeso Mexico scentralbankhadrepeatedlypromisedforeigninvestorsthatitwouldnotallowthepeso svaluetofall soitboughtpesosandsolddollarsto propup thepesoexchangerate DoingthisrequiresthatMexico scentralbankhaveadequatereservesofdollars Didit CHAPTER12TheOpenEconomyRevisited DollarreservesofMexico scentralbank December1993 28billionAugust17 1994 17billionDecember1 1994 9billionDecember15 1994 7billion During1994 Mexico scentralbankhidthefactthatitsreserveswerebeingdepleted CHAPTER12TheOpenEconomyRevisited thedisaster Dec 20 Mexicodevaluesthepesoby13 fixeseat25centsinsteadof29cents InvestorsareSHOCKED theyhadnoideaMexicowasrunningoutofreserves investorsdumptheirMexicanassetsandpulltheircapitaloutofMexico Dec 22 centralbank sreservesnearlygone Itabandonsthefixedrateandletsefloat Inaweek efallsanother30 CHAPTER12TheOpenEconomyRevisited Therescuepackage 1995 U S IMFsetup 50blineofcredittoprovideloanguaranteestoMexico sgovt ThishelpedrestoreconfidenceinMexico reducedtheriskpremium Afterahardrecessionin1995 Mexicobeganastrongrecoveryfromthecrisis CHAPTER12TheOpenEconomyRevisited CASESTUDY TheSoutheastAsiancrisis1997 98 ProblemsinthebankingsystemerodedinternationalconfidenceinSEAsianeconomies Riskpremiumsandinterestratesrose Stockpricesfellasforeigninvestorssoldassetsandpulledtheircapitalout Fallingstockpricesreducedthevalueofcollateralusedforbankloans increasingdefaultrates whichexacerbatedthecrisis Capitaloutflowsdepressedexchangerates CHAPTER12TheOpenEconomyRevisited DataontheSEAsiancrisis CHAPTER12TheOpenEconomyRevisited Floatingvs fixedexchangerates Argumentforfloatingrates allowsmonetarypolicytobeusedtopursueothergoals stablegrowth lowinflation Argumentsforfixedrates avoidsuncertaintyandvolatility makinginternationaltransactionseasier disciplinesmonetarypolicytopreventexcessivemoneygrowth hyperinflation CHAPTER12TheOpenEconomyRevisited TheImpossibleTrinity Anationcannothavefreecapitalflows independentmonetarypolicy andafixedexchangeratesimultaneously Anationmustchooseonesideofthistriangleandgiveuptheoppositecorner Option1 U S Option3 China Option2 HongKong CHAPTER12TheOpenEconomyRevisited CASESTUDY TheChineseCurrencyControversy 1995 2005 Chinafixeditsexchangerateat8 28yuanperdollar andrestrictedcapitalflows Manyobserversbelievedthattheyuanwassignificantlyundervalued asChinawasaccumulatinglargedollarreserves U S producerscomplainedthatChina scheapyuangaveChineseproducersanunfairadvantage PresidentBushaskedChinatoletitscurrencyfloat OthersintheU S wantedtariffsonChinesegoods CHAPTER12TheOpenEconomyRevisited CASESTUDY TheChineseCurrencyControversy IfChinaletstheyuanfloat itmayindeedappreciate However ifChinaalsoallowsgreatercapitalmobility thenChinesecitizensmaystartmovingtheirsavingsabroad Suchcapitaloutflowscouldcausetheyuantodepreciateratherthanappreciate CHAPTER12TheOpenEconomyRevisited Mundell FlemingandtheADcurve SofarinM Fmodel Phasbeenfixed Next toderivetheADcurve considertheimpactofachangeinPintheM Fmodel WenowwritetheM Fequationsas Earlierinthischapter Pwasfixed sowecouldwriteNXasafunctionofeinsteadof CHAPTER12TheOpenEconomyRevisited Y1 Y2 DerivingtheADcurve AD Y2 Y1 WhyADcurvehasnegativeslope P LMshiftsleft NX Y M P CHAPTER12TheOpenEconomyRevisited Fromtheshort