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Wynne Godley, Marc Lavoie (2005-6) Comprehensive accounting in simple open economy macroeconomics with endogenous sterilisation or flexible exchange rates”, Journal of Post Keynesian Economics, vol. 28, n. 2, pp. 277-312

Url: http://mesharpe.metapress.com/openurl.asp?genre=article&issn=0160-3477&volume=28&issue=2&spage=241

DOI: 10.2753/PKE0160-3477280205

Abstract: This paper presents a stock-flow model of two economies (together comprising the whole world) that trade goods and financial assets with one another. The first part of the paper describes a single economy on a fixed exchange rate, with no private capital flows, in order to obtain simple analytic solutions that display the basic constraints and forces at work–notably, endogenous “sterilization.” The second part describes a flexible exchange rate model, with two economies trading financial assets as well as merchandise. A final section adapts the two-country model to describe a fixed exchange rate regime. Our findings challenge established results, such as those of the Mundell- Fleming model.

Keywords: exchange rate determination, open economy macroeconomics, portfolio analysis, sterilization, Stocks and Flows, two-country models

November 13, 2010 | Comments Closed