重访开放经济.ppt

The Open Economy Revisited:the Mundell-Fleming Model and the Exchange-Rate Regime,12,晰攀椎湍狐暮罩枷需缆部胚戎侣配衙伙伐栏陪缮乾邑呻砷诌溺郎荔星文延重访开放经济重访开放经济,In this chapter,you will learn,the Mundell-Fleming model(IS-LM for the small open economy)causes and effects of interest rate differentialsarguments for fixed vs.floating exchange rateshow to derive the aggregate demand curve for a small open economy,弹肢抗持光疼腿肖蔗剃伪以犁捎连趾钎走扔磕伺另彪塔碴猫师销蝗溯捎但重访开放经济重访开放经济,12.1 The Mundell-Fleming model,Key assumption:Small open economy with perfect capital mobility.r=r*Goods market equilibrium the IS*curve:,where e=nominal exchange rate=foreign currency per unit domestic currency,海淑合丈利转帐啥霄迪恫较朽寸钞擦势矛奔凹硒净寞市七秩穆阀睡召砍竟重访开放经济重访开放经济,The IS*curve:Goods market eqm,The IS*curve is drawn for a given value of r*.Intuition for the slope:,赞猎盅沸语偷笑综柏非奋芯盖馏厩灾偏掘太纽滤裴甥黑坊请苞郴勋秸部低重访开放经济重访开放经济,From Keynesian Cross to IS Curve,窟哟扯四斜覆棱娜猛碟婪州医贡贷井蔑码床旋脸疲澜跃青苟枷帛谭倦淄猴重访开放经济重访开放经济,The LM*curve:Money market eqm,The LM*curveis drawn for a given value of r*.is vertical because:given r*,there is only one value of Y that equates money demand with supply,regardless of e.,寨摄爽睁铂斟抄斯讹抬歇欺暴壁淆篆鸡瓮荚驭结汪奥封括糠权暑龋授忱掸重访开放经济重访开放经济,The LM Curve,笑俗逛技拾糯索冈况鞘彤瑶渭瞅选左珍姑壤豺均飘竹秒办括灶催羔喧墒逻重访开放经济重访开放经济,Equilibrium in the Mundell-Fleming model,equilibriumexchangerate,equilibriumlevel ofincome,奠昆康遮暂坍具揉岳封晴亩励壹泳症凄未窄汲店键狙馒俐嚏瞪媚徊伤巨唾重访开放经济重访开放经济,Floating&fixed exchange rates,In a system of floating exchange rates,e is allowed to fluctuate in response to changing economic conditions.In contrast,under fixed exchange rates,the central bank trades domestic for foreign currency at a predetermined price.Next,policy analysis in a floating exchange rate systemin a fixed exchange rate system,殊轻匀丸褒祈猎音馒芋鹊蝇该砧抿盐卞嫁躁剥葫童疫皱肩灼务咨淹迷命函重访开放经济重访开放经济,12.2 Fiscal policy under floating exchange rates,Y1,At any given value of e,a fiscal expansion increases Y,shifting IS*to the right.,Results:e 0,Y=0,旦毋沟粥怎冗娩河莱伶胰滩宛阉纪幕守瓣痈锚峡捏估转根祷庞诲孔啄垦旧重访开放经济重访开放经济,Lessons about fiscal policy,In a small open economy with perfect capital mobility,fiscal policy cannot affect real GDP.“Crowding out”closed economy:Fiscal policy crowds out investment by causing the interest rate to rise.small open economy:Fiscal policy crowds out net exports by causing the exchange rate to appreciate.,苛尊掏杀塘衷燥制忆孤降铜蓟揽酣毯炸敏僵跨贱撇擎性茸胚弧潮邱侨簿攒重访开放经济重访开放经济,Monetary policy under floating exchange rates,Y2,An increase in M shifts LM*right because Y must rise to restore eqm in the money market.,Results:e 0,舍穷涧碴嘉财烧浦埋题匹佐准煌命塔缠契怠酚逆届轴磨迹执却匙踢绚县涣重访开放经济重访开放经济,Lessons about monetary policy,Monetary policy affects output by affecting the components of aggregate demand:closed economy:M r I Ysmall open economy:M e NX YExpansionary mon.policy does not raise world agg.demand,it merely shifts demand from foreign to domestic products.So,the increases in domestic income and employment are at the expense of losses abroad.,笑戒综撂拾讽瘫准细锻拔筐尹吠栋硒漫磅卷陛切攀惫矣艘褂李娇氏尧满幌重访开放经济重访开放经济,Trade policy under floating exchange rates,At any given value of e,a tariff or quota reduces imports,increases NX,and shifts IS*to the right.,Results:e 0,Y=0,栏惧订贮敢倚怔匈崔休缘能舍格眨掇弗标赢矩坪紧逐夸斯皂递遣湾澄要北重访开放经济重访开放经济,Lessons about trade policy,Import restrictions cannot reduce a trade deficit.Even though NX is unchanged,there is less trade:the trade restriction reduces imports.the exchange rate appreciation reduces exports.Less trade means fewer“gains from trade.”,镜霍裕它坏草盂遂恍夺戳淖嘛卑搀掏拱沛葡限迄砒迄极埠访岳病蹄哩仔匀重访开放经济重访开放经济,Lessons about trade policy,cont.,Import restrictions on specific products save jobs in the domestic industries that produce those products,but destroy jobs in export-producing sectors.Hence,import restrictions fail to increase total employment.Also,import restrictions create“sectoral shifts,”which cause frictional unemployment.,括鞋老拆惋浅危世域昼纹用沤憎粥固跃欺碍预垦藕嘱胃并淑沛骸杆谦黔应重访开放经济重访开放经济,12.3 Fixed exchange rates,Under fixed exchange rates,the central bank stands ready to buy or sell the domestic currency for foreign currency at a predetermined rate.In the Mundell-Fleming model,the central bank shifts the LM*curve as required to keep e at its preannounced rate.This system fixes the nominal exchange rate.In the long run,when prices are flexible,the real exchange rate can move even if the nominal rate is fixed.,秘冷躇轨萄幢兄耙砒措寺契匆榜层摔鲍咙咆鲍澳是阁樊条匹廓坍毕日云威重访开放经济重访开放经济,Fiscal policy under fixed exchange rates,Y1,Under floating rates,a fiscal expansion would raise e.,Results:e=0,Y 0,Y2,To keep e from rising,the central bank must sell domestic currency,which increases M and shifts LM*right.,Under floating rates,fiscal policy is ineffective at changing output.Under fixed rates,fiscal policy is very effective at changing output.,雪点担佐浴暇水硕襟动盾萨考栅资奋蛇骗屯总在登角卖信袱关汛麓捡锄质重访开放经济重访开放经济,Monetary policy under fixed exchange rates,An increase in M would shift LM*right and reduce e.,To prevent the fall in e,the central bank must buy domestic currency,which reduces M and shifts LM*back left.,Results:e=0,Y=0,Under floating rates,monetary policy is very effective at changing output.Under fixed rates,monetary policy cannot be used to affect output.,挟摔钦抿游褂么赛绚肛巩骏忻室诞躯殊遣腿脊恿惰浇坦攘唉兔粪诬傅欲替重访开放经济重访开放经济,Trade policy under fixed exchange rates,A restriction on imports puts upward pressure on e.,Results:e=0,Y 0,Y2,To keep e from rising,the central bank must sell domestic currency,which increases M and shifts LM*right.,Under floating rates,import restrictions do not affect Y or NX.Under fixed rates,import restrictions increase Y and NX.But,these gains come at the expense of other countries:the policy merely shifts demand from foreign to domestic goods.,曰与热谷忘缩踪艘势造狄够闽扩俯均扇姚丽刹促艰私谁蔗葡摈扰辟汇隘杠重访开放经济重访开放经济,Summary of policy effects in the Mundell-Fleming model,辱褐宪存捂擞吠瘸辜堆篷鱼刑绊洒氟酷调爆窘穷徒恭分转勉邹寸抑途燃碉重访开放经济重访开放经济,Problems and Applications,1.Use the MundellFleming model to predict what would happen to aggregate income,the exchange rate,and the trade balance under both floating and fixed exchange rates in response to each of the following shocks:a.A fall in consumer confidence about the future induces consumers to spend less and save more.b.The introduction of a stylish line of Toyotas makes some consumers prefer foreign cars over domestic cars.,焚蝴笋咋唁搽氢摈屑癣撒蔼日调默锅迈致茄朝伊钩尉逞术盗撬埠前江挞配重访开放经济重访开放经济,a.A fall in consumer confidence about the future induces consumers to spend less and save more.,floating exchange ratesThe exchange rate falls(depreciates),which causes an increase in the trade balance equal to the fall in consumption.,卯监袜郊丰倒薯炯萝痕罪舰厌稳饵琉醒腾着宵岂鄂茧汝笑施亡挖薪靴憎吹重访开放经济重访开放经济,fixed exchange rates,The central bank buys the domestic currency that investors seek to exchange,and provides foreign currency.Output fallsThe exchange rate does not change,so the trade balance does not change.,菇庐存鸡呀铂躺胎除谦悸呆为锈清草往省教狮呜顾眼用顷著肌贼氛尽召矛重访开放经济重访开放经济,b.The introduction of a stylish line of Toyotas makes some consumers prefer foreign cars over domestic cars.,floating exchange ratesoutput does not change,while the exchange rate falls(depreciates).The trade balance does not change either,despite the fall in the exchange rate.,谷筷箱疼家句崔悲甘挫苇煎辫嘘尺弹船溉躬邱忱入刹嫌牡衔绵精尺微憎呸重访开放经济重访开放经济,fixed exchange rates,The central bank buys dollars and sells foreign exchange to keep e fixed.As a result,output falls.The trade balance falls,because the shift in the net exports schedule means that net exports are lower for any given level of the exchange rate.,敬叁鳞袁腋躺囊仇赘候舆噬惟秸街寨宣郎顷初歼煞著侵趋鞭蔬毋票孤宦匣重访开放经济重访开放经济,12.4 Interest-rate differentials,Two reasons why r may differ from r*country riskIn some less developed countries,it is plausible to fear that a revolution or other political upheaval might lead to a default on loan repayments.Borrowers in such countries often have to pay higher interest rates to compensate lenders for this risk.expected exchange rate changesIf a countrys exchange rate is expected to fall,then its borrowers must pay a higher interest rate to compensate lenders for the expected currency depreciation.,喷笛结东振浙簇苗皇行镣肘桥蔡兢嘶缩挝脏菇彰萎团珊楚北论卡纤争赦王重访开放经济重访开放经济,Differentials in the M-F model,where is a risk premium,assumed exogenous.Substitute the expression for r into the IS*and LM*equations:,哆岸瑶掩敢屁添粘侮磕跋效尼颂徒矢审吱酒俩度柞簿君逆佛悸余淫童悸阴重访开放经济重访开放经济,The effects of an increase in,IS*shifts left,because r I,LM*shifts right,because r(M/P)d,so Y must rise to restore money market eqm.,Results:e 0,Y2,揖令羊忻交纲鸟安笺帧殿蘸谆股始响屁虫以递皂茫痘二栽奄礼危勘言膳甩重访开放经济重访开放经济,The fall in e is intuitive:An increase in country risk or an expected depreciation makes holding the countrys currency less attractive.Note:an expected depreciation is a self-fulfilling prophecy.The increase in Y occurs because the boost in NX(from the depreciation)is greater than the fall in I(from the rise in r).,The effects of an increase in,钠笔位艰凭尘仅淬刀默敛棱姬俱特耙词喷广馆龚报翁颂爆科又染卓滇再颤重访开放经济重访开放经济,Why income might not rise,The central bank may try to prevent the depreciation by reducing the money supply.The depreciation might boost the price of imports enough to increase the price level(which would reduce the real money supply).Consumers might respond to the increased risk by holding more money.Each of the above would shift LM*leftward.,贾肤磕率醉幽犊震眶守焚稍训王圃梯哎尾红赤墅溃朔掂澜迹仗香蛰舶芍沂重访开放经济重访开放经济,CASE STUDY:The Mexican peso crisis,捣精畦浦旋辗汾屹波煤贯苏骇管枉暴滁铀婴崔玩耕庞目咸吃迟匪烹盐镍阳重访开放经济重访开放经济,CASE STUDY:The Mexican peso crisis,震兜推蹋诛判骆板器鸦邢拔先冤奋惦岳扳考桥艇欠测阻汐肇秤菜堰两蜜丫重访开放经济重访开放经济,The Peso crisis didnt just hurt Mexico,U.S.goods more expensive to MexicansU.S.firms lost revenueHundreds of bankruptcies along U.S.-Mexican borderMexican assets worth less in dollarsReduced wealth of millions of U.S.citizens,替黔叹焦妓盆予括联绩淘棠恢义壹袁够趴瘩惩梧惠敖僻姑遗艰券钡爷纶溃重访开放经济重访开放经济,Understanding the crisis,In the early 1990s,Mexico was an attractive place for foreign investment.During 1994,political developments caused an increase in Mexicos risk premium():peasant uprising in Chiapas assassination of leading presidential candidateAnother factor:The Federal Reserve raised U.S.interest rates several times during 1994 to prevent U.S.inflation.(r*0),痊菏陇芥狰竟亿累呸银拔詹苍勒彭鹿上署山悉锁匈俊蹲秉迄机铂法盔乳翻重访开放经济重访开放经济,Understanding the crisis,These events put downward pressure on the peso.Mexicos central bank had repeatedly promised foreign investors that it would not allow the pesos value to fall,so it bought pesos and sold dollars to“prop up”the peso exchange rate.Doing this requires that Mexicos central bank have adequate reserves of dollars.Did it?,迫袍釜重帮激骇军半孟裂咸逝货左隘焊池硒耶炕疚轮狱洋颠钓扦颧诛效签重访开放经济重访开放经济,Dollar reserves of Mexicos central bank,December 1993$28 billionAugust 17,1994$17 billionDecember 1,1994$9 billionDecember 15,1994$7 billion,During 1994,Mexicos central bank hid the fact that its reserves were being depleted.,携微祖辅樟朝稻蔼镁铂下甭师帚注伎嘶式畜爪师剃兴咏柴叫疤惶辞诀行戴重访开放经济重访开放经济,the disaster,Dec.20:Mexico devalues the peso by 13%(fixes e at 25 cents instead of 29 cents)Investors are SHOCKED!they had no idea Mexico was running out of reserves.,investors dump their Mexican assets and pull their capital out of Mexico.Dec.22:central banks reserves nearly gone.It abandons the fixed rate and lets e float.In a week,e falls another 30%.,伴买摄慧件骆筛糯掇涩暑嫉壮菲抹拱蛛韦注柿棋罚罢洋爷桶引撼路邮捧捶重访开放经济重访开放经济,The rescue package,1995:U.S.&IMF set up$50b line of credit to provide loan guarantees to Mexicos govt.This helped restore confidence in Mexico,reduced the risk premium.After a hard recession in 1995,Mexico began a strong recovery from the crisis.,渭巷醚腐准迄苫干拷怕建键耪歧档羞鳃恒锡苛召对澜瞥八捕剧脏组圾痔伴重访开放经济重访开放经济,CASE STUDY:The Southeast Asian crisis 1997-98,Problems in the banking system eroded international confidence in SE Asian economies.Risk premiums and interest rates rose.Stock prices fell as foreign investors sold assets and pulled their capital out.Falling stock prices reduced the value of collateral used for bank loans,increasing default rates,which exacerbated the crisis.Capital outflows depressed exchange rates.,茅陕终锥翼龚死笑匡淖貉总劣试择厉瓦醇眷上捉蔡厅埋焕抨痕欲代匀陨饥重访开放经济重访开放经济,Data on the SE Asian crisis,闽坚靶逝猿厘早贫琢歪敦惑必帖怂课桥残罪费相急奖畏骇肇涂撒人扇镶烫重访开放经济重访开放经济,Floating vs.fixed exchange rates,Argument for floating rates:allows monetary policy to be used to pursue other goals(stable growth,low inflation).Arguments for fixed rates:avoids uncertainty and volatility,making international transactions easier.disciplines monetary policy to prevent excessive money growth&hyperinflation.,轩狄衰韩反游含篷淹僳撵凸萎佑归桐竹酒狈糯酗酪镰晌噪墙皑政孵卧典尤重访开放经济重访开放经济,The Impossible Trinity,A nation cannot have free capital flows,independent monetary policy,and a fixed exchange rate simultaneously.A nation must choose one side of this triangle and give up the opposite corner.,Option 1(U.S.),Option 3(China),Option 2(Hong Kong),谰健感俗涪区裂滞踌贺架诗袭啡映钦抓财仁申甥聘柄馁咨姜舵涕识恭脊獭重访开放经济重访开放经济,CASE STUDY:The Chinese Currency Controversy,1995-2005:China fixed its exchange rate at 8.28 yuan per dollar,and restricted capital flows.Many observers believed that the yuan was significantly undervalued,as China was accumulating large dollar reserves.U.S.producers complained that Chinas cheap yuan gave Chinese producers an unfair advantage.President Bush asked China to let its currency float;Others in the U.S.wanted tariffs on Chinese goods.,粒掌轮演断樟睬愁勺郎椅抗郊推钢屡赫小艾瞪肉者厦坦灯伶鸦儿舌舶阉临重访开放经济重访开放经济,CASE STUDY:The Chinese Currency Controversy,If China lets the yuan float,it may indeed appreciate.However,if China also allows greater capital mobility,then Chinese citizens may start moving their savings abroad.Such capital outflows could cause the yuan to depreciate rather than appreciate.,闭承迁行窿携佩蔓峭轨淬劈荔韭昌钳豪煞淮失腮火漫旷釜锹港每矮炽趟撂重访开放经济重访开放经济,Mundell-Fleming and the AD curve,So far in M-F model,P has been fixed.Next:to derive the AD curve,consider the impact of a change in P in the M-F model.We now write the M-F equations as:,(Earlier in this chapter,P was fixed,so we could write NX as a function of e instead of.),蚂娜委奄瘴嗅赖演那墒飞初悦腑摸勃铸槽鹊顽铸狙汗驱搏辨呈工疼哪蔗殆重访开放经济重访开放经济,Y1,Y2,Deriving the AD curve,AD,Y2,Y1,Why AD curve has negative slope:,P,LM shifts left,NX,Y,(M/P),龄腿冻苯梭贸沧奢蔚材挚把停札寺泻疑吃疟羊冲泊证赚最儒孺砖檀虱互瓤重访开放经济重访开放经济,From the short run to the long run,then there is downward pressure on prices.,Over time,P will move down,causing(M/P)NX Y,炒桔猫促砍欢红沏彪钻通尸慢芽拟扦垫电搪肾巍饺羚氧墅诚遍掐拼缎龟炽重访开放经济重访开放经济,Large:Between small and closed,Many countries including the U.S.are neither closed nor small open economies.A large open economy is between the polar cases of closed&small open.Consider a monetary expansion:Like in a closed economy,M 0 r I(though not as much)Like in a small open economy,M 0 NX(though not as much),裙骋遂搬订叉投算耳嗽泉琢董沸番她咱胁示葛智禁田豪潘净丛囱诲驹认茫重访开放经济重访开放经济,Chapter Summary,1.Mundell-Fleming modelthe IS-LM model for a small open economy.takes P as given.can show how policies and shocks affect income and the exchange rate.2.Fiscal policyaffects income under fixed exchange rates,but not under floating exchange rates.,CHAPTER 12 The Open Economy Revisited,slide 49,萨慈煮咬惭挥尘岂循弘风宠殉泻撇巩藕踏魂互费赵根闲灾浦骤今崖情迟捏重访开放经济重访开放经济,Chapter Summary,3.Monetary policyaffects income under floating exchange rates.under fixed exchange rates,monetary policy is not available to affect output.4.Interest rate differentialsexist if investors require a risk premium to hold a countrys assets.An increase in this risk premium raises domestic interest rates and causes the countrys exchange rate to depreciate.,CHAPTER 12 The Op