金融经济学 Financial_Economics_5.pptVIP

Putting it all together Determining exchange rates 3 basic steps Determine the long-run value of the exchange rate PPP Factors influencing the real exchange rate Special factors Examine interest rates or rates of return on assets Work back to the present (spot) exchange rate using interest parity. Monetary and fiscal policy Under fixed and under floating exchange rates Under floating exchange rates Monetary policy has a strong short-run impact on aggregate demand. Δ M Δr Δ e Δ X In the long run, P rises and the real exchange rate returns to its original level. A decline in e is a depreciation of the domestic currency Under floating exchange rates Fiscal policy has a weak short-run impact on aggregate demand. ΔG Δ r Δ e Δ X A rise in G raises the exchange rate and reduces exports Under fixed exchange rates If there are no controls on international flows of money Monetary policy must adjust the interest rate to maintain the exchange rate So the CB cannot use interest rates to adjust aggregate demand Under fixed exchange rates Say the CB raises the money supply (reduces the interest rate) Δr official settlements BoP deficit Δ official reserves money supply Δ r Under fixed exchange rates Say financial markets expect a devaluation of the currency F the forward rate, goes down Since the spot exchange rate is unchanged, (F-E)/E rises That is, the forward discount widens Under fixed exchange rates (F-E)/E rises Recall covered interest parity: i - if ≈ (F- E) / E If if is fixed, i must rise Conclusion Under flexible exchange rates, use monetary policy to stabilise demand Under fixed exchange rates, use fiscal policy to stabilise demand Covered interest parity:an example (US investor) Say E = 1.58 $ /€ Say if = 4% Say i = 2% Say F = 1.55 $ /€ Convert $100 into euros = € 63.29 Invest €63.29 at 4% Sell euros forward at F = $ 1.55 /€ Covered interes