(国际收支学说)The Mundell-Fleming Model (Topic 1)

K = k (r − r*)
where r = domestic rate of interest r* = world interest rate k (≥ 0) = interest sensitivity of international capital flows – represents “degree of capital mobility”
e2 > e1 > e3
Horizontal shift of IS Schedule:
1 dX dz0 − ∆e (1 − c1 + z1 ) de de
3
Money market equilibrium and the LM Schedule
Demand for real money balances MD = m0 + m1Y − m2 r P Real money supply MS M = P P Money market equilibrium MS MD = P P or
Real Private Sector Consumption Real Private Sector Investment Real Government Expenditure
X = Real value of exports Z = Real value of imports (measured in terms of domestic output equivalent: see Open Economy Handout, pages 3-4)
M = m0 + m1Y − m2 r P
Rearranging
M + m1Y P r= m2 This equation describes the Open Economy LM Schedule m0 −
dr dY
Байду номын сангаас
=
LM
m1 m2
4
BALANCE OF PAYMENTS EQUILIBRIUM AND THE BB SCHEDULE The Overall Balance of Payments
This equation describes the open economy IS Schedule.
2
Comparison with closed economy IS Schedule. 1. The open economy IS Schedule is steeper than its closed economy counterpart.
Open Economy Multiplier = 3.
The position of the IS Schedule depends on the exchange rate
Depreciation of domestic currency (rise in e). Domestic competitiveness improves, increasing exports and reducing imports, therefore increasing demand for domestic output: IS shifts to right Appreciation of domestic currency (fall in e) Domestic competitiveness deteriorates, reducing demand for domestic output: IS shifts to left
OVERALL EQUILIBRIUM
∆r * k ∆r * z1
Overall equilibrium requires: 1. 2. Internal equilibrium, i.e. simultaneous goods and money market equilibrium External equilibrium, i.e. BOP equilibrium
5
Slope of BB schedule
dr dY =
BB
z1 k
As k increases BB becomes flatter
Limiting cases of capital mobility
1.
Zero capital mobility: k = 0
dr dY
=∞
BB
YT =
X ( e ) − z0 ( e ) z1
THE MUNDELL-FLEMING MODEL
OPEN ECONOMY IS-LM FRAMEWORK Central Assumptions 1. 2. 3. The domestic economy is “small” in relation to the rest of the world: values of world variables (world income, prices and interest rate) exogenous. The domestic economy produces a single composite good, traded on world markets, but an imperfect substitute for world output. Domestic output is demand-determined, with its price, P, constant.
Rise in e represents a depreciation of the domestic currency
Goods Market Equilibrium and the IS Schedule
Closed economy GME condition
Y =E Open economy GME condition Y =D
dr dY =
IS
−(1 − c1 + z1 ) i1
where 2.
(1 − c1 + z1 ) (1 − c1 ) > i1 i1 The open economy multiplier is smaller than the corresponding closed economy multiplier. 1 1 < 1 − c1 + z1 1 − c1
E T P D =C + I +G+ X −Z
Y = Real Output E = Real Expenditure
D = Demand for Domestic Output T = Real Trade Balance C = c0 + c1Y I = i0 − i1r
G =G
Effect of r*
An increase in r* shifts BB upwards and to the left. A fall in r* shifts BB down and to the right. Extent of vertical shift: Extent of horizontal shift:
Overall BOP Equilibrium
B ≡T +K =0
i.e.
X (e) − z0 (e) − z1Y + k (r − r*) = 0
or
k (r − r*) = z0 (e) − X (e) + z1Y z0 (e) − X (e) + z1Y k This equation defines the BB (Balance of Payments Equilibrium) schedule r = r *+
Extent of horizontal shift of BB:
1 dX dz0 − ∆e z1 de de
7
For a given ∆e , the horizontal shift of BB exceeds the horizontal shift of IS
1 dX dz0 1 dX dz0 − − ∆e > ∆e 1 − c1 + z1 de de z1 de de
6
Perfect Capital Mobility: k → ∞
dr dY
=0
BB
Equation of BB Schedule becomes: r = r * In general, the position of the BB Schedule depends on e and r*
r = r *+ Effect of e z0 (e) − X (e) + z1Y k
A depreciation of the domestic currency (rise in e) shifts BB to the right An appreciation of the domestic currency (fall in e) shifts BB to the left
e2 > e1 > e3
The foreign currency price of world output, P*, is also assumed constant. Representation of the exchange rate e = nominal exchange rate, measured as number of units of domestic currency per unit of foreign currency. e.g. £0.645 = 1 Euro
The Trade Balance T = X −Z
or
T = X (e) − z0 (e) − z1Y The Capital Account