Working Paper: NBER ID: w1177
Authors: Joshua Aizenman
Abstract: The purpose of this paper Is to construct a two-period, two-country model that derives the current account, the exchange rate,the terms of trade, and real interest rates from optimal behavior principles.This is done by constructing a model that uses money mainly as a means of exchange, where the technology of exchange is flexible due to potential substitutability of time and real balances as a means of coordinating transactions. The discussion results in a framework that integrates elements of net saving theories and the monetary approach into a unified structure, in which the two approaches are complementary viewpoints.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| current account surplus in one country (F32) | current account deficit in another country (F32) |
| increase in relative home money supply (E51) | depreciation of exchange rate (F31) |
| higher money supply (E51) | higher domestic prices (P22) |
| higher domestic prices (P22) | depreciation of exchange rate (F31) |
| expectations of future monetary policies (E60) | current depreciation (D25) |
| real shocks (F31) | correlated changes in exchange rate, current account, and terms of trade (F32) |