Questions tagged [open-economy-macro]
The open-economy-macro tag has no usage guidance.
75
questions
4
votes
0answers
26 views
Shifts in IS in a fixed exchange rate mechanism
First, we assume we are in a fixed exchange rate mechanism. In this system, I deduce that the expected exchange rate would be fixed, at the market rate.
In a floating system, with open capital markets,...
0
votes
1answer
37 views
Why would foreign asset purchases by PBOC temper yuan appreciation?
Suppose the PBOC buys a bunch of dollar-denominated bonds, using its dollar reserves. All else equal, what effect should this have on the yuan-USD exchange rate? And why? It amounts to trading non-...
1
vote
0answers
19 views
What is the no ponzi condition for this representative consumer problem? Tags: Initial condition, no-ponzi game
This question is following Farhi et.al. 2014's consumer budget constraint modified to add a government bond and removing money. A simplified version is given below which is pertinent to the question.
$...
0
votes
0answers
12 views
Effects of a decrease of the policy rate on net exports
We've recently worked in class with the IS-LM-UIP model (where UIP stands for the uncovered interest rate parity). The central bank chooses the policy rate. Hence, the LM curve is horizontal. The IS ...
0
votes
0answers
9 views
Foreign money supply and its effect on home in case of perfect capital immobility
I am looking of the effects of an increased money supply abroad on home's economy.
Capital is supposed to be immobile, i.e. NFI = 0.
Within an IS-LM-BP-modell (Mundell-Fleming) a vertical line denotes ...
0
votes
2answers
116 views
Why is the supply curve in the foreign-currency exchange market vertical?
In the book 'Economics' by Mankiw and Taylor the demand and supply curves on the foreign-currency exchange market are shown as follows:
The supply equals the Net Capital Outflow (NCO). I would have ...
0
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0answers
35 views
Book about monetary union?
do you know any book/manual dealing specifically with monetary unions ? I know economics of monetary union of De Grauwe, but I'm looking for other references.
Thank you
0
votes
1answer
18 views
Dynamics of interest rates, exchange rates and bond prices within the UIP
There are already a few questions about the workings of the UIP and the exchange rate. What I have basically taken from those discussions is that one always has to distinguish between the spot rate ...
0
votes
1answer
37 views
Macroeconomic model of the open economy - NCO and loanable funds
Can anyone explain to me why a capital flight from a country increases the demand for loanable funds in that country. Here's the standard explanation.
https://policonomics.com/lp-open-economy-loanable-...
1
vote
1answer
33 views
Connection between saving and investments-Y=C+I+G+NX [duplicate]
I understand
Y-G+C = I+NX = Savings . The equation that we see everywhere in economic textbooks. I see the mathematical logic.
BUT
Given that I = capital investment in GDP accounting surely Savings ...
0
votes
0answers
18 views
Similarities between microeconomic and macroeconomic failure. And, how microeconomic failures affect the economy at the macro level?
I can't make a relation between microeconomic and macroeconomic failures? I know they have differences. However, I want to know the effect of these two economic breakdowns on each other.
I am meaning ...
2
votes
0answers
29 views
Difference between IS-LM-UIP and IS-LM-BP models?
My query is regarding the Mundell-Fleming model. I am reading the chapters on open-economy macroeconomics from Blanchard (I am following Blanchard mainly and I have read all the previous chapters). In ...
1
vote
0answers
16 views
When a country purchases foreign assets, does it change the Net Capital Outflow?
When a country purchases foreign assets, does it change the Net Capital Outflow?
This was a discussion question in my class, and a lot ended up answering that NCO increases, but I'm not so sure.
...
1
vote
1answer
42 views
Why do some researchers include oil price in a VAR model?
Why do some researchers include international oil prices in a VAR model for small open economies? My intuition is that international oil prices cannot be a endogenous variable in the context of a ...
2
votes
1answer
76 views
What are some examples of goods that entrepreneurship-intense?
Entrepreneurship is considered to be one of factors of production (the other factors of production are capital, labor and land).
According to Heckscher–Ohlin model, a country that has an abundant ...
3
votes
1answer
134 views
Fiscal policy in the Dornbusch model
I'm studying the Dornbusch overshooting model of the exchange rate. Specifically, I'm studying the model presented in a textbook by Copeland (2014).
The economy is represented by the following ...
0
votes
0answers
125 views
How to interpret correctly the uncovered interest rate parity condition
So, according to my macroeconomics professor's notes, the UNCOVERED INTEREST RATE PARITY CONDITION is defined this way :
Now, i don't quite grasp the concept of the 'expected appreciation rate of ...
0
votes
0answers
38 views
How to define world interest rate using IS-LM-BP diagram?
Can you suggest where is the world interest rate in the economy which has a positive current account and a financial account surplus, fixed exchange rate and relative capital immobility? The graph of ...
0
votes
1answer
37 views
Positive productivity shock with a fall in output
I am modeling a two-country world. Within each country there exists a representative infinitely-lived agent, a representative final good producer, a continuum of domestic monopolistic competitive ...
3
votes
0answers
42 views
Elasticity of substitution in leisure
This might be a very basic question, but I am a beginner in macro models. I would appreciate help with my doubt.
In different papers I have read about the elasticity of labor supply or the inverse of ...
2
votes
4answers
202 views
Why do we spread knowledge across nations?
We have access to lots of knowledge on paper sharing platforms, open course platforms, open-source platforms and question asking platforms and etc, and Tesla opened all its electric car patents in ...
2
votes
0answers
41 views
Log-linear version of current account equation
I am working on my thesis, doing a two-country model with traded and non-traded goods considering incomplete asset markets and imperfect pass-through. In a sense, I am following Benigno & ...
0
votes
1answer
54 views
Log-linearization of real exchange rate
I have a doubt on how to log linearize an expression for the real exchange rate. I have read in several papers that they express it using substitutions. I haven't been able to find out what ...
0
votes
1answer
69 views
Log-linear version of the uncovered interest rate parity
I am trying to derive the log-linear version of the uncovered interest rate parity under complete asset markets.
I know that the UIP condition is given by
$$(1+i_t)=(1+i^*_t)\frac{S_{t+1}}{S_t}$$
I ...
1
vote
0answers
70 views
Transversality Condition
I am reading the first section of chapter 10 of the Obstfeld and Rogoff textbook Foundations of International Economics and I have a doubt in how the transversality condition is obtained. Even though ...
1
vote
0answers
33 views
Non-traded goods in Two Country New Keynesian Model
I am working on a two-country New Keynesian model, where I include traded and non-traded goods. The final good is produced using traded and non-traded inputs:
$$
Z_t=\bigg[a^\frac{1}{\kappa}Z_{T,t}^{\...
0
votes
2answers
321 views
What does it mean if a country's exchange rate is said to be “overvalued”?
For instance, China's or Switzerland's currencies are often said to be overvalued.
1
vote
1answer
91 views
When to use a lagrange multiplier?
I have a question in regards to the use of Lagrange multipliers in macro models.
I have seen that when writing a Lagrange there are two ways to write the Lagrange multiplier: 1) Indexed or 2) ...
2
votes
0answers
55 views
When does the interest rate parity curve shift?
Given the IS LM IRP model,
can somebody tell me the difference for when there is a movement along the IRP curve and when there is an actual shift in the IRP curve?
0
votes
1answer
26 views
How does exchange rate change with respect to interests?
If the central bank raises intereat rates, isn't the money supply now less and the exchange rate is greater? I have run into opposite statements and dont know how to approach this problem.
Thanks in ...
0
votes
1answer
31 views
Which one of these intepretations of belonging of a factor of production is correct in context of calculating “income of our citizens abroad”?
NFFI can be calculated as income of foreigners here MINUS income of our citizens/corporations abroad. As far as I understand, it's assumed that our citizens earn income by using OUR factors of ...
4
votes
1answer
2k views
Bretton Woods vs Gold Standard
I've been reading about the history of the IMF recently, and it strikes me as odd that despite the problems that arose with the gold standard (Germany in the 1920s, Fed cutting money supply during the ...
0
votes
2answers
80 views
Gali (2015) Chapter 8 Symmetric Steady State
In Chapter 8 (small open economy) of Gali's 2015 version of Monetary Policy, Inflation, and the Business Cycle, he often performs log linearisations around a symmetric steady state like below:
My ...
1
vote
0answers
45 views
Why a Current Account deficit implies a Financial Account surplus [duplicate]
Every macro textbook out there states that if a country has a Current Account deficit, it must have a surplus in the Financial account, but I have not heard a convincing explanation.
Imagine a ...
3
votes
1answer
720 views
What is a good proxy for government quality?
Is it ok to use corruption as a proxy for government quality?
-2
votes
1answer
110 views
find the equilibrium level of Y [closed]
Assume that the LM curve for a small open economy with a floating exchange rate is given by Y =
200r – 200 + 2(M/P), while the IS curve is Y = 400 + 3G – 2T + 3NX – 200r. The function for NX is
NX = ...
1
vote
0answers
56 views
Why is it so hard to understand NCO = NE?
A lot of explanations about this matter depend on the fact that the foreign cash could be seen as a foreign assets. They say like "if you export a car and earn 100 yen, then it means that you have now ...
3
votes
1answer
99 views
The Difference between investment and savings in CA identity
Mathematically speaking the current account is defined as:
$$\text{CA}=S-I$$
where $S$ is savings and $I$ is investment.
We know for a closed economy $S=I$ so $CA=0$. practically speaking for an ...
2
votes
2answers
74 views
Are Investments positively or negatively correlated with interest rate
Having just begun self-studying economics, I apologise if this question is too simple.
Do investments increase or decrease with increased interest rate?
According to the small, closed economy model (...
3
votes
1answer
21 views
Why FDI stock in the same year is different in the same reports?
From World Investment Report 2003, in 2000, the US has 12.4% GDP as FDI inward stock and 13.2% GDP as FDI outward stock. These numbers are equivalent to 1274720 million USD, and 1356960 million USD. ...
1
vote
1answer
35 views
Terms definition in Balance of Payment
I have problems in distinguishing among terms in the Balance of Payment / the international balance sheet of a nation.
As far as I know, on Assets and Liabilities sides of BPM, there are Portfolio ...
5
votes
1answer
125 views
Teaching: from Microeconomics to Open-economy macro
I am a new faculty teaching MBA courses. Presently, I am teaching International Financial Management (IFM) and Macroeconomics. I have prepared the syllabus of macroeconomics based on first 9 chapters ...
1
vote
1answer
167 views
Good book on capital flows?
Are there any good textbooks/books for capital flows?
I have found some from searching online, but they are a bit older:
International Capital Flows by Feldstein in 1999
Capital Flows and Crises by ...
0
votes
2answers
64 views
Market crash causes
Does market crash like in 1930 and 2009 are always due to excessive and careless lending activity? Lets say all lending is done in careful manner and no corporate fraud is done somehow, would it be ...
0
votes
1answer
591 views
Net Positions vs Gross Positions as they Relate to the Current Account
What is the difference between say, gross asset and liability positions and net asset and liability positions? I mean these terms in the particular way that Cavallo and Tille use them in their 2006 ...
1
vote
0answers
107 views
Can the current account go into deficit with zero capital mobility?
So, can it? The supposition is that this has been caused by an increase in domestic residents' marginal propensity to import.
My thought would have been: no, it cannot, but my answer seems too simple ...
2
votes
1answer
269 views
Appropriate estimator for FDI “gravity” model
I am trying to model Foreign Direct Investment (FDI) flows and am facing several issues;
There is the well-known condition that under heteroskedasticity log-linearized OLS models are biased and ...
1
vote
0answers
67 views
Understanding the complex relationship between macro and micro economic factor: Job shift
As the world knows plenty of manufacturing jobs shifted from various countries to China. This macroeconomic trend of consolidating manufacturing jobs in China has been going on for past 30 years. ...
1
vote
2answers
133 views
Why did the hybrid Phillips Curve become flatter (as empirical data shows) after the crisis?
The Phillips Curve equation is:
$$\pi_t=\pi_t^e + \beta_1 (\beta_2 Y_t + (1-\beta_2) Z_t) + \varepsilon_t^\pi$$
where $\pi_t$ is the inflation, $\pi_t^e$ is the expected inflation, $Y_t$ is the output ...
4
votes
1answer
76 views
How can I calculate with the average of the consumption in an RBC framework?
In the following open-economy RBC model consumption level ($C_t$) is not the most important for the representative households, but the difference of the consumption level and the earlier level of the ...
