International Capital Mobility and the Coordination of Monetary Rules / Nicholas Carlozzi, John B. Taylor.

By:

Carlozzi, Nicholas

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w1242.Publication details: Cambridge, Mass. National Bureau of Economic Research 1983.Description: 1 online resource: illustrations (black and white)Subject(s):

E - Macroeconomics and Monetary Economics

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Abstract: The paper develops a two-country model with flexible exchange rates and perfect capital mobility, for evaluating the alternative macroeconomic policy rules. Macroeconomic performance is measured in terms of fluctuations in inflation and output. Expectations are rational, and prices are sticky; wagesetting is staggered over time. The countries are linked by aggregate spending effects, relative price effects, and mark-up pricing arrangements. The modelis solved and analyzed through deterministic and stochastic simulation techniques. The results suggest that international capital mobility is not necessarily an impediment to efficient domestic macroeconomic performance. Changes in the expected appreciation or a depreciation of the exchange rate along with differentials between real interest rates in the two countries can permit macroeconomic performance in one country to be relatively independent of the policy rule chosen by the other country. The results depend on the particular parameter values used in the model and suggest the need for further econometric work to determine the size of these parameters.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w1242 (Browse shelf(Opens below))	Not For Loan

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December 1983.

The paper develops a two-country model with flexible exchange rates and perfect capital mobility, for evaluating the alternative macroeconomic policy rules. Macroeconomic performance is measured in terms of fluctuations in inflation and output. Expectations are rational, and prices are sticky; wagesetting is staggered over time. The countries are linked by aggregate spending effects, relative price effects, and mark-up pricing arrangements. The modelis solved and analyzed through deterministic and stochastic simulation techniques. The results suggest that international capital mobility is not necessarily an impediment to efficient domestic macroeconomic performance. Changes in the expected appreciation or a depreciation of the exchange rate along with differentials between real interest rates in the two countries can permit macroeconomic performance in one country to be relatively independent of the policy rule chosen by the other country. The results depend on the particular parameter values used in the model and suggest the need for further econometric work to determine the size of these parameters.