Open-Economy Macroeconomics: Theory without Evidence

  • Peter Spencer
Part of the International Economic Association Series book series (IEA)

Abstract

This chapter begins by taking a quick look at the simple monetary model, which arguably gives a reasonable description of a small open economy and puts most of the basic ideas into focus. Then, I shall show how the basic Mundell—Fleming (MF) model of the open economy has been developed over the last few years and give my assessment of the current state of play.

Keywords

Europe Income Expense Arena Nash 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Aizenman, J. (1988) ‘Monopolistic Competition and Labour Market Adjustment in the open Economy’, in Marston, R. C. (ed.) Misalignment of Exchange Rates: Effects on Trade and Industry (Cambridge University Press).Google Scholar
  2. Argy, V. (1986) ‘The Effects of Monetary and Fiscal Policy with Flexible Exchange Rates and Imperfect Asset Substitutability’, International Economic Research Papers, no. 52.Google Scholar
  3. Argy, V. and Salop, J. (1979) ‘Price and Output Effects of Monetary and Fiscal Policy Under Flexible Exchange Rates’, IMF Staff Papers, no. 26, pp. 224–56.CrossRefGoogle Scholar
  4. Backus, D. and Driffill, J. (1985) ‘Inflation and Reputation’, American Economic Review, vol. 75, no. 3.Google Scholar
  5. Barro, R. J. (1974) ‘Are Government Bonds Net Wealth?’, Journal of Political Economy, vol. 82, pp. 1095–117.CrossRefGoogle Scholar
  6. Barro, R. J. (ed.) (1989) Modern Business Cycle Theory (Oxford: Basil Blackwell).Google Scholar
  7. Barro, R. J. and Gordon, D. A. (1983) ‘Rules, Discretion and Reputation in a Model of Monetary Policy’, Journal of Monetary Economics, vol. 17, pp. 101–22.CrossRefGoogle Scholar
  8. Blanchard, O. J. (1985) ‘Debt, Deficits and Finite Horizons’, Journal of Political Economy, vol. 93, pp. 223–47.CrossRefGoogle Scholar
  9. Bomhoff, E. J. (1994) ‘Empirical Models of the Exchange Rate’, in Fitoussi, J.-P. (ed.), Capital and Labour Markets and Economic Growth, from ‘Economics in A Changing World’, IEA Conference Volume Series (Moscow) no. 111 (London: Macmillan).Google Scholar
  10. Branson, W. H. (1977) ‘Asset Markets and Relative Prices in Exchange Rate Determination’, Institute for International Economic Studies, Reprint Series no. 98.Google Scholar
  11. Branson, W. H. (1988) ‘Sources of Misalignment in the 1980s’, in Marston, R. C. (ed.), Misalignment of Exchange Rates: E f fects on Trade and Industry (Cambridge University Press).Google Scholar
  12. Bryant, R. C. (ed.) (1988) Empirical Macroeconomics for Interdependent Economies (Washington, DC: The Brookings Institute).Google Scholar
  13. Buiter, W. (1981) ‘Time Preference and International Lending and Borrowing in an Overlapping-Generation Model’, Journal of Political Economy, vol. 89, pp. 769–97.CrossRefGoogle Scholar
  14. Cooper, R. N. (1984) ‘Economic Interdependence and Co-ordination of Economic Policies’, in Jones, R. W. and Kennen, P. B. (eds), Handbook in International Economics, vol. II (Amsterdam: Elsevier Science Publishers).Google Scholar
  15. Corden, W. M. (1988) ‘On Transmission and Co-ordination’, in Buiter, W. and Marston, R. C. (eds), International Economic Policy Co-ordination (Chicago: University of Chicago Press).Google Scholar
  16. Diamond, P. (1965) ‘National Debt in a Neo-classical Growth Model; American Economic Review, vol. 55, pp. 1126–50.Google Scholar
  17. Dixit, A. K. (1978) ‘The Balance of Trade in a Model of Temporary Equilibrium with Rationing’, Review of Economic Studies, October, pp. 393–404.Google Scholar
  18. Dooley, M. P. and Isard, P. (1980) ‘Capital Controls, Political Risk and Deviations from Interest Rate Parity’, Journal of Political Economy, vol. 88, pp. 370–84.CrossRefGoogle Scholar
  19. Dooley, M. P. and Shafer, J. R. (1983) ‘Analysis of Short Run Exchange Rate Behaviour March 1973 to November 1981’, in Bigman, D. and Taya, T. (eds), Exchange Rate and Trade Instability (Cambridge, Mass.: Ballinger).Google Scholar
  20. Dornbusch, R. (1974) ‘Real and Monetary Aspects of the Effects of Exchange Rate Changes’, in Aliber, R. Z. (ed.) National Monetary Policies and the International Financial Systems (Chicago University Press).Google Scholar
  21. Dornbusch, R. (1976) ‘Expectations and Exchange Rate Dynamics’, Journal of Political Economy, December, pp. 1161–76.Google Scholar
  22. Dornbusch, R. (1980) ‘Exchange Rate Economics: Where Do We Stand?’, Brookings Papers on Economic Activity, no. 1, pp. 143–85.CrossRefGoogle Scholar
  23. Dornbusch, R. (1987) ‘Exchange Rate Economics: 1986’, Economic Journal, (March) vol. 97, no. 385, pp. 1–19.CrossRefGoogle Scholar
  24. Dornbusch, R. and Fischer, S. (1980) ‘Exchange Rates and the Current Account’, The American Economic Review, December, pp. 960–71.Google Scholar
  25. Engle, R. J. and Granger, C. W. J. (1987) ‘Co-integration; Error Correction: Representation, Estimation and Testing’, Econometrica, vol. 55, no. 22.Google Scholar
  26. Fama, E. F. (1984) ‘Forward and Spot Exchange Rates’, Journal of Monetary Economics, vol. 14, no. 3, pp. 319–8.CrossRefGoogle Scholar
  27. Fisher, P. G., Tanna, S. K., Turner, D. S., Wallis, K. F. and Whitley, J. D. (1990) ‘Economic Evaluation of the Exchange Rate in Alternative Models of the UK Economy’, Economic Journal, vol. 100, pp. 1230–44.CrossRefGoogle Scholar
  28. Fleming, J. (1962) ‘Domestic Financial Policies Fixed and Under Floating Exchange Rates’, IMF Staff Papers, November, pp. 369–79.Google Scholar
  29. Frankel, J. A. and Froot, K. (1986a) ‘Under the US Dollar in the Eighties: The Expectations of Chartists and Fundamentalists’, Economic Record, Special Issue, pp. 24–38.Google Scholar
  30. Frankel, J. A. and Froot, K. (1986b) ‘A Tale of Fundamentalists and Chartists’, NBER Working Paper no. 1854.Google Scholar
  31. Frenkel, J. A. (1981) ‘Flexible Exchange Rates Prices and the Role of News: Lessons from the 1970s’, Journal of Political Economy, August.Google Scholar
  32. Frenkel, J. A. (1988) (ed.) International Aspects of Fiscal Policies (Cambridge University Press).Google Scholar
  33. Frenkel, J. A. and Engel, C. M. (1984) ‘Do Asset-Demand Functions Optimise over the Mean and Variance of Real Returns: A Six Currency Test?’, Journal of International Economics.Google Scholar
  34. Frenkel, J. A. and Razin, A. (1985) ‘Government Spending, Debt and International Economic Interdependence’, Economic Journal, vol. 95, pp. 619–36.CrossRefGoogle Scholar
  35. Frenkel, J. A. and Razin, A. (1986a) ‘Fiscal Policies in the World Economy’, Journal of Political Economy, vol. 94, pp. 564–94.CrossRefGoogle Scholar
  36. Frenkel, J. A. and Razin, A. (1986b) ‘Real Exchange Rates, Interest Rates and Fiscal Policies’, Economic Studies Quarterly, vol. 37, pp. 99–113.Google Scholar
  37. Frenkel, J. A. and Rockett, K. E. (1988) ‘International Macroeconomic Policy Co-ordination when Policy Makers do not Agree in the True Model’, American Economic Review, vol. 78, pp. 318–40.Google Scholar
  38. Haache, G. and Townend, J. (1981) ‘Exchange Rates and Monetary Policy: Modelling Sterling’s Effective Exchange Rate, 1972–80’, in Eltis, W. A. and Sinclair, P. J. N. (eds), The Money Supply and the Exchange Rate, pp. 201–47 (Oxford University Press).Google Scholar
  39. Hamada, K. (1974) ‘Alternative Exchange Rate Systems and the Interdependence of Monetary Policies’, in Aliber, R. (ed.), National Monetary Policies and the International Financial Systems (University of Chicago Press).Google Scholar
  40. Hamada, K. (1976) ‘A Strategic Analysis of Monetary Independence’, Journal of Political Economy, vol. 84, pp. 677–700.CrossRefGoogle Scholar
  41. Hamada, K. (1985) The Political Economy of International Monetary Interdependence (Cambridge, Mass.: MIT Press).Google Scholar
  42. Helliwell, J. and Padmore, T. (1985) ‘Empirical Studies of Macroeconomic Interdependence’, in Jones, R. W. and Kenen, P. B. (eds), Handbook of International Economies, vol. II (Amsterdam: Elsevier Science Publishers).Google Scholar
  43. Helpman, E. (1992) ‘Endogenous Macroeconomics Growth Theory’, European Economic Review, vol. 36, no. 1, April.Google Scholar
  44. Holtham, G. and Hughes Hallet, A. J. (1987) ‘International Policy Co-operation and Model Uncertainty’, in Bryant, R. and Portes, R. (eds), Global Macroeconomics Policy Conflict and Co-operation (London: Macmillan).Google Scholar
  45. Ishii, N., McKibbin, W. J. and Sachs, J. D. (1985) ‘The Economic Policy Mix, Policy Co-operation, and Protectionism: Some Aspects of Macroeconomic Interdependence Among the United States, Japan, and other OECD Countries’, Journal of Policy Modelling, vol. II, no. 4, pp. 533–72.CrossRefGoogle Scholar
  46. Johnson, H. G. (1976) ‘The Monetary Approach to Balance of Payments Theory’, in Frenkel, J. and Johnson, H. G., The Economics of Exchange Rates (University of Chicago Press).Google Scholar
  47. Kearney, C. P. and Macdonald, R. (1988) ‘Asset Markets and the Exchange Rate: A Structural Model of the Sterling—Dollar Rate 1972–1982’, Journal of Economic Studies, vol. 12, pp. 33–60.Google Scholar
  48. Kouri, P. J. K. (1976) ‘The Exchange Rate and the Balance of Payments in the Short Run and in the Long Run: A Monetary Approach’, Scandinavian Journal of Economics, vol. 78, pp. 200–4.CrossRefGoogle Scholar
  49. Kydland, F. E. and Prescott, E. C. (1977) ‘Rules Rather than Discretion: the Inconsistency of Optimal Plans’, Journal of Political Economy, vol. 85, pp. 473–92.CrossRefGoogle Scholar
  50. Lucas, R. E. (1982) ‘Interest Rates and Currency Prices in a Two-Country World’, Journal of Monetary Economics, vol. 10, pp. 355–60.CrossRefGoogle Scholar
  51. McKibbin, W. J. and Sachs, J. D. (1986) ‘Comparing the Global Performance of Alternative Exchange Rate Arrangement’, Brookings Papers in International Economics, no. 49, August.Google Scholar
  52. Malley, J. and Moutos, T. (1992) ‘Pricing to Markets, Exchange Rates and Macroeconomic Policies’, University of Sterling, Discussion Paper, July.Google Scholar
  53. Masson, P. and Knight, W. (1990) ‘Economic Interactions and the Fiscal Policies of Major Industrial Countries: 1980–1988’, in Courakis, A. S. and Taylor, M. P. (eds), Private Behaviour and Government Policy in Interdependent Economies (Oxford University Press).Google Scholar
  54. Marston, R. C. (1985) ‘Stabilisation Policies in Open Economies’, in Jones, R. and Kenen, P. (eds), Handbook of International Economics, vol. 2 (Amsterdam: North-Holland).Google Scholar
  55. Marston, R. C. (1988) (ed.), Misalignment of Exchange Rates: Effects on Trade and Industry (Cambridge University Press).Google Scholar
  56. Meese, R. A. and Rogoff, K. (1983) ‘Empirical Exchange Rate Models of the Seventies: Do They Fit Out of Sample?’, Journal of International Economics, vol. 14, pp. 3–24.CrossRefGoogle Scholar
  57. Meese, R. A. and Rogoff, K. (1984) ‘The Out of Sample Failure of Empirical Exchange Rate Models: Sampling Error or Misspecification?’ in Frenkel, J. A. (ed.), Exchange Rates and International Macroeconomics (University of Chicago Press).Google Scholar
  58. Morris, D. (1988) Government Debt in International Financial Markets (New York: Pinter).Google Scholar
  59. Mundell, R. A. (1963) ‘Capital Mobility and Mobility and Stabilisation Policy under Fixed and Flexible Exchange Rates’, Canadian Journal of Economics and Political Science, November.Google Scholar
  60. Mundell, R. A. (1968) International Economics (New York: Macmillan).Google Scholar
  61. Mussa, M. (1976) ‘The Exchange Rate, The Balance of Payments, and Monetary Policy Under A Regime of Controlled Floating’, Scandinavian Journal of Economics, no. 78, pp. 229–48.CrossRefGoogle Scholar
  62. Neary, J. P. and Purvis, D. D. (1981) ‘Sectoral Shocks in a Dependent Economy; Long Run Adjustment and Short Run Accommodation’, Institute for International Economic Studies, Seminar Paper, no. 188, Stockholm.Google Scholar
  63. Niehans, J. (1975) ‘Some Doubts about the Efficacy of Monetary Policy under Flexible Exchange Rates’, Journal of International Economics, vol. 5, August.Google Scholar
  64. Oudiz, G. (1985) ‘European Policy Co-ordination: An Evaluation’, Centre for Economic Policy Research, Discussion Paper, no. 81, October.Google Scholar
  65. Oudiz, G. and Sachs, J. D. (1984) ‘Macroeconomic Policy Co-ordination among the Industrial Economies’, Brookings Papers on Economic Activity, no. 1, pp. 1–64.CrossRefGoogle Scholar
  66. Oudiz, G. and Sachs, J. D. (1985) ‘International Policy Co-ordination in Dynamic Macroeconomic Models’ in Buiter, W. H. and Marston, R. C. (eds), International Economic Policy Co-ordination (Cambridge and New York: Cambridge University Press).Google Scholar
  67. Persson, T. (1985) ‘Deficits and Intergenerational Welfare in Open Economies’, Journal of International Economics, vol. 19, pp. 67–84.CrossRefGoogle Scholar
  68. Rogoff, K. (1985) ‘Can International Monetary Policy Co-ordination be Counter Productive?’, Journal of International Economics, vol. 18, pp. 199–217.CrossRefGoogle Scholar
  69. Sachs, J. D. and Wyplosz, C. (1984) ‘Real Exchange Rate Effects of Fiscal Policy’ NBER Working Paper, no. 1255 (January).Google Scholar
  70. Salter, W. E. G. (1959) ‘Internal and External Balance: The Role of Price & Expenditure Effects’, Economic Record (August).Google Scholar
  71. Shaw, G. (1992) ‘The Policy Implications of Endogenous Growth Theory’, The Economic Journal, vol. 102, no. 4 (May).Google Scholar
  72. Stockman, A. (1980) ‘A Theory of Exchange Rate Determination’, Journal of Political Economy, vol. 88, pp. 673–97.CrossRefGoogle Scholar
  73. Taylor, J. B. (1985) ‘International Co-ordination in the Design of Macroeconomic Policy Rules’, European Economic Review, vol. 28.Google Scholar
  74. Taylor, M. P. (1992) ‘Exchange Rate Economics: A Survey’, IMF Working Paper.Google Scholar
  75. van Wijnbergen, S. (1986) ‘On Fiscal Deficits, the Real Exchange Rate and the World Rate of Interest’, European Economic Review, vol. 30, pp. 1013–23.CrossRefGoogle Scholar
  76. Varoudakis, A. A. (1992) ‘Endogenous Growth with Overlapping Generations in the Open Economy’, University Robert Schuman, Strasbourg (mimeo).Google Scholar

Copyright information

© International Economic Association 1994

Authors and Affiliations

  • Peter Spencer
    • 1
  1. 1.Kleinwort Benson SecuritiesUniversity of StrathclydeUK

Personalised recommendations