Capital Mobility and Devaluation in an Optimizing Model with Rational Expectations

Maurice Obstfeld

No 557, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines the effects of ex-change-rate policies when individuals maximize lifetime utility on the basis of rational expectations about the future. The economy studied is one in which the authorities allow free mobility of capital under a crawling-peg exchange-rate regime. Many industrializing economies have adopted a crawling peg as a means of reconciling disparate inflation rates at home and abroad, and some recent efforts to use the rate of crawl as an instrument of anti-inflation policy have attracted considerable interest (see Carlos Diaz Alejandro). Tools similar to those employed here have been applied by Guillermo Calvo (forthcoming) to study this type of exchange-rate management under conditions of capital immobility.

Date: 1980-10
Note: ITI IFM
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Published as Obstfeld, Maurice. "Capital Mobility and Devaluation in an Optimizing Modelwith Rational Expectations." The American Economic Review, Vol. 71, No. 2,(May 1981), pp. 217-221.

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Journal Article: Capital Mobility and Devaluation in an Optimizing Model with Rational Expectations (1981)
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