 Overvalued and undervalued exchange rates in an equilibrium optimizing modelJose Saul Lizondo No 223, Policy Research Working Paper Series from The World Bank Abstract: Intertemporal equilibrium optimizing models have recently become the standard framework for analyzing such macroeconomic issues as terms of trade, fiscal or trade policy, international transfers, supply shocks, and technological progress. In the model Lizondo presents, sustainable fiscal policies produce an equilibrium real exchange rates, and unsustainable policies produce misaligned exchange rates. When the exchange rate is overvalued, maintaining present fiscal policies means the present value of lifetime public sector spending would be higher than the present value of taxes. For Lizondo's model to be used to obtain welfare conclusions about the use of overvalued or undervalued exchange rates, it would be necessary to assign some social value to public sector expenditure. Other fruitful modifications of the model would be to incorporate investment activity as well as money - the latter of which would allow for discussion of the effects of monetary policy, exchange rate arrangements, and nominal exchange rate policy. Keywords: Economic Stabilization; Economic Theory&Research; Macroeconomic Management; Environmental Economics&Policies; Achieving Shared Growth (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:223 Access Statistics for this paper More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.