IDEAS home Printed from https://ideas.repec.org/a/oup/cambje/v28y2004i2p205-227.html
   My bibliography  Save this article

Exchange rate indeterminacy in portfolio balance, Mundell--Fleming and uncovered interest rate parity models

Author

Listed:
  • Lance Taylor

Abstract

With full stock/flow accounting respected, the two-country open economy portfolio balance model has just two independent equations for asset market clearing. It can determine home and foreign interest rates but not the exchange rate. If asset market equilibria vary smoothly over time, the balance of payments equation in the Mundell--Fleming model is not independent and cannot set the exchange rate either. The familiar fixed reserves/'floating rate' vs endogenous reserves/'fixed rate' dichotomy does not exist, and 'fundamentals-based' econometric models of the exchange rate are bound to fail. An alternative is a two-country IS/LM model with exchange rate dynamics added. Its dynamic properties under uncovered interest rate parity are briefly explored. Copyright 2004, Oxford University Press.

Suggested Citation

  • Lance Taylor, 2004. "Exchange rate indeterminacy in portfolio balance, Mundell--Fleming and uncovered interest rate parity models," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 28(2), pages 205-227, March.
    • Handle: RePEc:oup:cambje:v:28:y:2004:i:2:p:205-227
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Roberto Veneziani & Luca Zamparelli & Michalis Nikiforos & Gennaro Zezza, 2017. "Stock-Flow Consistent Macroeconomic Models: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1204-1239, December.
    2. Akinseye Olowu & Edwin Ijeoma & Annabel Vanroose, 2019. "The Nexus of Macroeconomic Policy and Entrepreneurship Performance in West Africa," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 8, November.
    3. Anton Kuzmin, 2022. "Mathematical Exchange Rates Modeling: Equilibrium and Nonequilibrium Dynamics," Mathematics, MDPI, vol. 10(24), pages 1-19, December.
    4. Martín Rapetti, 2013. "The Real Exchange Rate and Economic Growth: Some Observations on the Possible Channels," UMASS Amherst Economics Working Papers 2013-11, University of Massachusetts Amherst, Department of Economics.
    5. Plakandaras, Vasilios & Papadimitriou, Theophilos & Gogas, Periklis, 2012. "Directional forecasting in financial time series using support vector machines: The USD/Euro exchange rate," DUTH Research Papers in Economics 5-2012, Democritus University of Thrace, Department of Economics.
    6. Yang‐Chao Wang & Jui‐Jung Tsai & Shushu Li & Yiying Huang, 2023. "The impacts of RMB internationalization on onshore and offshore RMB markets," International Review of Finance, International Review of Finance Ltd., vol. 23(3), pages 502-523, September.
    7. Mickaël Clévenot & Yann Guy, 2007. "The inconsistency of French regulation mode faced with the financialization of accumulation pattern," Working Papers hal-00188614, HAL.
    8. Arslan Razmi, 2018. "Does the demand regime matter over the medium run? Revisiting distributional issues in a portfolio framework under different exchange rate regimes," Metroeconomica, Wiley Blackwell, vol. 69(4), pages 708-736, November.
    9. Yeldan Erinc A., 2008. "Prospects for Inflation Targeting in the MENA Region: Feasibility, Desirability and Alternatives," Review of Middle East Economics and Finance, De Gruyter, vol. 4(3), pages 83-100, September.
    10. Alberto Botta, 2014. "The Macroeconomics of a Financial Dutch Disease," DEM Working Papers Series 089, University of Pavia, Department of Economics and Management.
    11. repec:ilo:ilowps:467426 is not listed on IDEAS
    12. Carlos Eduardo Castillo-Maldonado & Fidel Pérez-Macal, 2013. "Assessment of models to forecast exchange rates: The quetzal–U.S. dollar exchange rate," Journal of Applied Economics, Universidad del CEMA, vol. 16, pages 71-99, May.
    13. Roberto Frenkel & Lance Taylor, 2006. "Real Exchange Rate, Monetary Policy and Employment," Working Papers 19, United Nations, Department of Economics and Social Affairs.
    14. Yeldan, Erinc., 2011. "Macroeconomics of growth and employment : the case of Turkey," ILO Working Papers 994674263402676, International Labour Organization.
    15. Leonardo Vera, 2014. "The Simple Post-Keynesian Monetary Policy Model: An Open Economy Approach," Review of Political Economy, Taylor & Francis Journals, vol. 26(4), pages 526-548, October.
    16. Ghassan, Hassan B., 2007. "La condition de Marshall-Lerner-Robinson est-elle stable ? Approche par le test GLS cointégration à niveau et puissance améliorés [Does the Marshall-Lerner-Robinson condition verify the stability? ," MPRA Paper 56354, University Library of Munich, Germany, revised 15 Jan 2008.

    More about this item

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    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:oup:cambje:v:28:y:2004:i:2:p:205-227. 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: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/cje .

    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.