国际金融(英文版).ppt

Fiscal policy with floating exchange rates Example: an expansionary fiscal policy – interest rates increase – capital flow in (in the short run) – financial account improve Meanwhile, the expansionary fiscal policy increases aggregate demand – imports increase – current account worsen thus, there are tow opposing effects of an expansionary fiscal policy on exchange rates * In general, if capital is mobile, the domestic currency is likely appreciated at first. But eventually the aggregate-demand effect is likely to prevail, which leads to the depreciation of domestic currency in the long run The feedback effects of an expansionary fiscal policy depend on which way the exchange rate changes: If the capital flow-in effect is stronger in the short run – domestic currency appreciates – the international price competiveness of domestic firms decreases – current account worsen and the expansionary fiscal policy loses some of its power (“international crowding out” effect) * If the aggregate-demand effect is stronger (as it is likely in the long run) – domestic currency depreciates – the international price competiveness of domestic firms increases – current account improves – aggregate demand increase further – the expansionary fiscal policy gains more power * Shocks to the economy with floating exchange rates Internal shocks: Domestic monetary shocks have powerful effects on the economy. An expansionary (contractive) monetary shock tends to depreciate (appreciate) domestic currency, which further increases (decreases) domestic product. The effect of a domestic spending shocks on the exchange rates and the economy depends on which changes more: international capital flows or the country’s current account * International capital-flow shocks: capital outflow (inflow) tends to depreciate (appreciate) domestic currency – the international price competiveness of domestic firms increases (decreases) – current account balance improve (worsen) – domestic product inc