Economics at your fingertips  

Exchange Rates and Portfolio Balance

John Martin () and Paul Masson ()

No 377, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: An open economy portfolio balance model, describing allocation among money, a domestic bond, and a traded foreign currency bond is developed for a world of many countries. A special role is attributed to the dollar, namely that all internationally traded bonds are denominated in that currency. It is shown that in the short run with real variables exogenous and expectations static, stability requires that all countries except the U.S. be net creditors in dollar-denominated bonds. What data are available on inter-country claims suggest that some countries may well be net debtors abroad in foreign currency. In particular, if one excludes direct investment claims, private claims on the rest of the world by Japan and Canada have been negative over the period of floating rates since 1973. However, some preliminary reduced-form regression equations for the dollar exchange rates of these two countries do not support the implications of the portfolio balance model in the debtor case. On the other hand, an equation for a composite of Western European currencies (by our calculations, this group of countries is a net creditor) gives more promising results.

Date: 1979-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
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:

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

Page updated 2019-11-23
Handle: RePEc:nbr:nberwo:0377