Exchange-Rate Dynamics and Optimal Asset Accumulation Revisited /
Obstfeld, Maurice.
Exchange-Rate Dynamics and Optimal Asset Accumulation Revisited / Maurice Obstfeld. - Cambridge, Mass. National Bureau of Economic Research 1988. - 1 online resource: illustrations (black and white); - NBER technical working paper series no. t0064 . - Technical Working Paper Series (National Bureau of Economic Research) no. t0064. .
February 1988.
It has recently been observed that when equations of motion for state variables are nonautonomous, optimal control problems involving Uzawa's endogenous rate of time preference cannot be solved using the change-of-variables method common in the literature. Instead, the problem must be solved by explicitly adding an additional state variable that measures the motion of time preference over time. This note reassesses earlier work of my own on exchange rate dynamics, which was based on a change-of- variables solution procedure. When the correct two-state-variable solution procedure is used, the model's qualitative predictions are unchanged. In addition, the analysis yields an intuitive interpretation of the extra co-state variable that arises in solving the individual's maximization problem.
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Exchange-Rate Dynamics and Optimal Asset Accumulation Revisited / Maurice Obstfeld. - Cambridge, Mass. National Bureau of Economic Research 1988. - 1 online resource: illustrations (black and white); - NBER technical working paper series no. t0064 . - Technical Working Paper Series (National Bureau of Economic Research) no. t0064. .
February 1988.
It has recently been observed that when equations of motion for state variables are nonautonomous, optimal control problems involving Uzawa's endogenous rate of time preference cannot be solved using the change-of-variables method common in the literature. Instead, the problem must be solved by explicitly adding an additional state variable that measures the motion of time preference over time. This note reassesses earlier work of my own on exchange rate dynamics, which was based on a change-of- variables solution procedure. When the correct two-state-variable solution procedure is used, the model's qualitative predictions are unchanged. In addition, the analysis yields an intuitive interpretation of the extra co-state variable that arises in solving the individual's maximization problem.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.