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A Theory of Current Account and Exchange Rate Determinations

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  • Joshua Aizenman

Abstract

The purpose of this paper Is to construct a two-period, two-country model that derives the current account, the exchange rate,the terms of trade, and real interest rates from optimal behavior principles.This is done by constructing a model that uses money mainly as a means of exchange, where the technology of exchange is flexible due to potential substitutability of time and real balances as a means of coordinating transactions. The discussion results in a framework that integrates elements of net saving theories and the monetary approach into a unified structure, in which the two approaches are complementary viewpoints.

Suggested Citation

  • Joshua Aizenman, 1983. "A Theory of Current Account and Exchange Rate Determinations," NBER Working Papers 1177, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1177
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    References listed on IDEAS

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    1. Liviatan, Nissan, 1981. "Monetary Expansion and Real Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1218-1227, December.
    2. Stockman, Alan C, 1980. "A Theory of Exchange Rate Determination," Journal of Political Economy, University of Chicago Press, vol. 88(4), pages 673-698, August.
    3. Jeffrey D. Sachs, 1981. "The Current Account and macroeconomic Adjustment in the 1970s," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 201-282.
    4. Helpman, Elhanan & Razin, Assaf, 1982. "Dynamics of a Floating Exchange Rate Regime," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 728-754, August.
    5. Svensson, Lars E O & Razin, Assaf, 1983. "The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 97-125, February.
    6. Dornbusch, Rudiger & Frenkel, Jacob A, 1973. "Inflation and Growth: Alternative Approaches," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 5(1), pages 141-156, Part I Fe.
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    1. Joshua Aizenman, 1986. "On the Complementarity of Commercial Policy, Capital Controls, and Inflation Tax," Canadian Journal of Economics, Canadian Economics Association, vol. 19(1), pages 114-133, February.
    2. Preston J. Miller & Richard M. Todd, 1992. "Real effects of monetary policy in a world economy," Staff Report 154, Federal Reserve Bank of Minneapolis.
    3. Sebastián Edwards, 2008. "On Current Account Surpluses and the Correction of Global Imbalances," Central Banking, Analysis, and Economic Policies Book Series, in: Kevin Cowan & Sebastián Edwards & Rodrigo O. Valdés & Norman Loayza (Series Editor) & Klaus Schmidt- (ed.),Current Account and External Financing, edition 1, volume 12, chapter 2, pages 025-083, Central Bank of Chile.
    4. Sebastian Edwards, 2007. "On Current Account Surpluses and the Correction of Global Imbalances," NBER Working Papers 12904, National Bureau of Economic Research, Inc.
    5. Sebastián Edwards, 2007. "On Current Account Surpluses and the Correction of Global Imbalances," Working Papers Central Bank of Chile 440, Central Bank of Chile.
    6. Miller, Preston J. & Todd, Richard M., 1995. "Real effects of monetary policy in a world economy," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 125-153.

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