Balance of Payments and the Foreign Exchange Market: A Dynamic Partial Equilibrium Model

Pentti J.K. Kouri

No 644, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a dynamic partial equilibrium model of the foreign exchange market extending the standard textbook model in two respects. First, capital account transactions are explicitly incorporated into the model, and secondly, 'rational' speculative behaviour is also introduced. At a point in time, or in a given day, exchange rate fluctuations are dominated by 'new information' that leads to revision of speculative expectations, as well as by other disturbances on the capital account. In the long run, fundamental factors, such as divergences of inflation rates and real changes influencing the trade balance, become relevant in determining the 'trend' of the exchange rate. A variety of exercises, and numerical simulations, illustrate the usefulness of the dynamic supply-demand model in understanding the behaviour of floating exchange rates in a world of high capital mobility.

Date: 1981-03
Note: ITI IFM
References: Add references at CitEc
Citations: View citations in EconPapers (15)

Published as Kouri, Pentti J. K. "Balance of Payments and the Foreign Exchange Market: A Dynamic Partial Equilibrium Model." Economic Interndependence and Flexible Exchange Rates, edited by Jagdeep S. Bhandari andBulford H. Putnam, pp. 11 6-156, Cambridge: MIT Press, 1983.

Downloads: (external link)
http://www.nber.org/papers/w0644.pdf (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: https://EconPapers.repec.org/RePEc:nbr:nberwo:0644

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w0644

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 ().