IDEAS home Printed from https://ideas.repec.org/p/zbw/kondp2/216.html
   My bibliography  Save this paper

The international transmission of economic shocks in a three-country world under mixed exchange rates

Author

Listed:
  • Läufer, Nikolaus K. A.
  • Sundararajan, Srinivasa

Abstract

The international transmission of economic disturbances is analysed in a three-country world where two countries have no macroeconomic impact on a third country but are large enough to influence each other under a system of mixed exchange rates - a system that combines the fixed exchange rates (FERs) among two EC member countries (Germany and France) and the flexible exchange rates (FLERs) towards a third country, the rest of the world (USA). We find that a positive output demand shock originating in Germany or France has a positive effect on domestic output, but, due to a special third country effect, is likely to produce a contractionary impact on foreign output (negative transmission) while the total effect on the world economy is expansionary. Money supply shocks in either Germany or France have identical effects on the output of the two countries. The FLER component of the MER regime serves as. an important tool for dampening the impact of US shocks on the output of the EC.

Suggested Citation

  • Läufer, Nikolaus K. A. & Sundararajan, Srinivasa, 1994. "The international transmission of economic shocks in a three-country world under mixed exchange rates," Discussion Papers, Series II 216, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    • Handle: RePEc:zbw:kondp2:216
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/101459/1/737085800.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Turnovsky, Stephen J, 1981. "Monetary Policy and Foreign Price Disturbances under Flexible Exchange Rates: A Stochastic Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(2), pages 156-176, May.
    2. William H. Branson & Julio J. Rotemberg, 1991. "International Adjustment with Wage Rigidity," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 13-44, National Bureau of Economic Research, Inc.
    3. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
    4. Corden, W. Max & Turnovsky, Stephen J., 1983. "Negative international transmission of economic expansion," European Economic Review, Elsevier, vol. 20(1-3), pages 289-310, January.
    5. John F. O. Bilson & Richard C. Marston, 1984. "Exchange Rate Theory and Practice," NBER Books, National Bureau of Economic Research, Inc, number bils84-1.
    6. Ishii, Naoko & McKibbin, Warwick & Sachs, Jeffrey, 1985. "The economic policy mix, policy cooperation, and protectionism: Some aspects of macroeconomic interdependence among the United States, Japan, and other OECD countries," Journal of Policy Modeling, Elsevier, vol. 7(4), pages 533-572.
    7. repec:bla:scandj:v:78:y:1976:i:2:p:255-75 is not listed on IDEAS
    8. Schmid, Michael, 1982. "Devaluation: Keynesian trade models and the monetary approach : The role of nominal and real wage rigidity," European Economic Review, Elsevier, vol. 17(1), pages 27-50.
    9. Richard C. Marston, 1984. "Exchange Rate Unions as an Alternative to Flexible Rates: The Effects of Real and Monetary Disturbances," NBER Chapters, in: Exchange Rate Theory and Practice, pages 407-442, National Bureau of Economic Research, Inc.
    10. Devereux, Michael, 1988. "The Optimal Mix of Wage Indexation and Foreign Exchange Market Intervention," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(3), pages 381-392, August.
    11. Jeffrey Sachs, 1980. "Wages, Flexible Exchange Rates, and Macroeconomic Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(4), pages 731-747.
    12. Robert P. Flood & Nancy Peregrim Marion, 1982. "The Transmission of Disturbances under Alternative Exchange-Rate Regimes with Optimal Indexing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 97(1), pages 43-66.
    13. Cox, W. Michael, 1980. "Unanticipated money, output, and prices in the small economy," Journal of Monetary Economics, Elsevier, vol. 6(3), pages 359-384, July.
    14. Richard C. Marston, 1982. "Wages, Relative Prices and the Choice between Fixed and Flexible Exchange Rates," Canadian Journal of Economics, Canadian Economics Association, vol. 15(1), pages 87-103, February.
    15. Argy, Victor & Salop, Joanne, 1983. "Price and Output Effects of Monetary and Fiscal Expansion in a Two-Country World under Flexible Exchange Rates," Oxford Economic Papers, Oxford University Press, vol. 35(2), pages 228-246, July.
    16. Warwick J. McKibbin & Jeffrey D. Sachs, 1986. "Comparing the Performance of Alternative Exchange Arrangements," NBER Working Papers 2024, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Clausen, Volker & Wohltmann, Hans-Werner, 2005. "Monetary and fiscal policy dynamics in an asymmetric monetary union," Journal of International Money and Finance, Elsevier, vol. 24(1), pages 139-167, February.
    2. Feuerstein, Switgard, 1997. "Fiscal policy in an asymmetric exchange rate union," International Review of Economics & Finance, Elsevier, vol. 6(3), pages 239-258.
    3. Oscar Bajo Rubio & Carmen Díaz-Roldán, "undated". "A General Framework for the Macroeconomic Analysis of Monetary Unions," Working Papers on International Economics and Finance 01-06, FEDEA.
    4. Karras, Georgios, 1999. "Openness and the effects of monetary policy," Journal of International Money and Finance, Elsevier, vol. 18(1), pages 13-26, January.
    5. Chibuike R. Oguanobi* & Anthony A. Akamobi & Ogonna E. Ifebi & Anne C. Maduka, 2015. "Does interest rate shocks transmit from united states to Ghana? Evidence from vector auto-regression," Journal of Developing Areas, Tennessee State University, College of Business, vol. 49(3), pages 1-12, July-Sepe.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Läufer, Nikolaus K. A. & Sundararajan, Srinivasa, 1992. "International transmission of economic shocks: The case of mixed exchange rates in a three-country world," Discussion Papers, Series II 178, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    2. Sundararajan, Srinivasa, 1994. "The transmission of correlated shocks under mixed exchange rates," Discussion Papers, Series II 245, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    3. Läufer, Nikolaus K. A. & Sundararajan, Srinivasa, 1992. "Stabilization policy in multi-country models," Discussion Papers, Series II 170, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    4. Stephen J. Turnovsky, 1983. "Wage Indexation and Exchange Market Interventions in a Small Open Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 16(4), pages 574-592, November.
    5. Kotilainen, Markku, . "Exchange Rate Unions: A Comparison with Currency Basket and Floating Rate Regimes," ETLA A, The Research Institute of the Finnish Economy, number 21, June.
    6. Joshua Aizenman, 1985. "Wage Flexibility and Openness," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(2), pages 539-550.
    7. Richard C. Marston, 1982. "Real Wages and the Terms of Trade: Alternative Indexation Rules for an Open Economy," NBER Working Papers 1046, National Bureau of Economic Research, Inc.
    8. Oscar Bajo Rubio & Carmen Díaz-Roldán, "undated". "A General Framework for the Macroeconomic Analysis of Monetary Unions," Working Papers on International Economics and Finance 01-06, FEDEA.
    9. Alesina, Alberto & Perotti, Roberto, 1995. "Taxation and redistribution in an open economy," European Economic Review, Elsevier, vol. 39(5), pages 961-979, May.
    10. Richard C. Marston, 1984. "Exchange Rate Unions as an Alternative to Flexible Rates: The Effects of Real and Monetary Disturbances," NBER Chapters, in: Exchange Rate Theory and Practice, pages 407-442, National Bureau of Economic Research, Inc.
    11. Eric Bleuze, 1988. "L'interdépendance des économies en change flexible : les apports d'une maquette dynamique," Post-Print hal-01304325, HAL.
    12. repec:spo:wpmain:info:hdl:2441/5386 is not listed on IDEAS
    13. repec:hal:spmain:info:hdl:2441/5386 is not listed on IDEAS
    14. Patrick Artus, 1985. "L'indexation des salaires : une optique de stabilisation macro-économique," Revue Économique, Programme National Persée, vol. 36(2), pages 291-320.
    15. Aizenman, Joshua & Frenkel, Jacob A, 1985. "Optimal Wage Indexation, Foreign Exchange Intervention, and Monetary Policy," American Economic Review, American Economic Association, vol. 75(3), pages 402-423, June.
    16. Robert P. Flood & Robert J. Hodrick, 1986. "Money and the Open Economy Business Cycle: A Flexible Price Model," NBER Working Papers 1967, National Bureau of Economic Research, Inc.
    17. Henri Sterdyniak & Éric Bleuze, 1988. "L'interdépendance des économies en change flexible : les apports d'une maquette dynamique," Revue Économique, Programme National Persée, vol. 39(5), pages 999-1034.
    18. Joshua Aizenman, 1984. "Optimal Wage Re-Negotiation," NBER Working Papers 1279, National Bureau of Economic Research, Inc.
    19. Aizenman, Joshua, 1984. "Modeling Deviations from Purchasing Power Parity (PPP)," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 175-191, February.
    20. Kenneth S. Rogoff, 1983. "Productive and counterproductive cooperative monetary policies," International Finance Discussion Papers 233, Board of Governors of the Federal Reserve System (U.S.).
    21. Jean-Paul Pollin & William Marois, 1985. "Avant-propos," Revue Économique, Programme National Persée, vol. 36(6), pages 1155-1168.
    22. Mayes, David G. & Vilmunen, Jouko, 1999. "Unemployment in a small open economy: Finland and New Zealand," Bank of Finland Research Discussion Papers 10/1999, Bank of Finland.

    More about this item

    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:zbw:kondp2:216. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/fwkonde.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.