Exchange rate indeterminacy in portfolio balance, Mundell--Fleming and uncovered interest rate parity models

Lance Taylor

Cambridge Journal of Economics, 2004, vol. 28, issue 2, 205-227

Abstract: With full stock/flow accounting respected, the two-country open economy portfolio balance model has just two independent equations for asset market clearing. It can determine home and foreign interest rates but not the exchange rate. If asset market equilibria vary smoothly over time, the balance of payments equation in the Mundell--Fleming model is not independent and cannot set the exchange rate either. The familiar fixed reserves/'floating rate' vs endogenous reserves/'fixed rate' dichotomy does not exist, and 'fundamentals-based' econometric models of the exchange rate are bound to fail. An alternative is a two-country IS/LM model with exchange rate dynamics added. Its dynamic properties under uncovered interest rate parity are briefly explored. Copyright 2004, Oxford University Press.

Date: 2004
References: Add references at CitEc
Citations: View citations in EconPapers (18)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Working Paper: Exchange rate indeterminacy in portfolio balance, Mundell-Fleming, and uncovered interest rate parity models (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:cambje:v:28:y:2004:i:2:p:205-227

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Cambridge Journal of Economics is currently edited by Jacqui Lagrue

More articles in Cambridge Journal of Economics from Cambridge Political Economy Society Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().