IDEAS home Printed from https://ideas.repec.org/a/cii/cepiie/2017-q1-149-6.html
   My bibliography  Save this article

A dynamic IS-LM-X model of exchange rate adjustments and movements

Author

Listed:
  • Peijie Wang

Abstract

This paper contributes to the literature through developing a model of exchange rate adjustments in a dynamic IS-LM-X analytical framework. Our new model, in particular, a) makes the IS-LM model dynamic; b) endogenizes the exchange rate and price variables and; c) extends the dynamic IS and LM components into the external sector in an open economy that evolves over time. The effect of a change in monetary policy on the exchange rate is evaluated and the trajectory towards its new long-run equilibrium level is projected. These are in contrast to the traditional monetary models of exchange rate determination and adjustments that play primarily with the LM component of the IS-LM framework in discrete steps. Effects of interest rate parity and purchasing power parity are then scrutinized, ranging from the short-term to the long-run continuously. The study has profound policy implications, especially in an era of quantitative easing.

Suggested Citation

  • Peijie Wang, 2017. "A dynamic IS-LM-X model of exchange rate adjustments and movements," International Economics, CEPII research center, issue 149, pages 74-86.
    • Handle: RePEc:cii:cepiie:2017-q1-149-6
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S2110701716301056
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Exchange rate; Monetary policy; Interest rate parity; Purchasing power parity;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cii:cepiie:2017-q1-149-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/cepiifr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.