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The Intertemporal Approach to the Balance of Payments, and the Real Exchange Rate

In: International Finance and Open-Economy Macroeconomics

Author

Listed:
  • Giancarlo Gandolfo

    (Accademia Nazionale dei Lincei)

Abstract

Forward-looking behaviour, namely current behaviour (for example current saving and investment decisions) determined by calculations based on expectations of future variables (for example future income, productivity growth, real interest rates, etc.) is one of the hallmarks of modern macroeconomics, and forms the basis of the new open-economy macroeconomics (NOEM), the “new” or modern view, that considers trade and financial flows as the outcome of intertemporally optimal saving-investment decisions by forward-looking agents. The new international macroeconomic theory, following the steps of the new closed-economy macroeconomics, has reached a high degree of sophistication where new models are built based on microfoundations, and the open-economy macroeconomic behaviour is obtained as the outcome of intertemporal optimization by a representative agent This chapter illustrates the foundations of the intertemporal approach to the balance of payments and to the real exchange rate.

Suggested Citation

  • Giancarlo Gandolfo, 2016. "The Intertemporal Approach to the Balance of Payments, and the Real Exchange Rate," Springer Texts in Business and Economics, in: International Finance and Open-Economy Macroeconomics, edition 2, chapter 18, pages 457-495, Springer.
    • Handle: RePEc:spr:sptchp:978-3-662-49862-0_18
    DOI: 10.1007/978-3-662-49862-0_18
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