ISBN:
0444867937
Content:
This chapter discusses that the modern open economy is not the one found in most macroeconomic textbooks, an economy that occasionally imports Bordeaux wine but which produces most of what it consumes at prices determined domestically. It is rather an economy integrated with those abroad through commodity and financial linkages that limit the scope for national stabilization policy. The progressive modifications are classified into three categories: capital mobility; wage and price flexibility; and rational expectations and the natural rate hypothesis. The chapter examines standard propositions about policy using rational expectations and a stochastic supply function. The same model is used to re-examine the choice between exchange rate regimes and the insulating properties of flexible rates. The chapter focuses on a single national economy. This economy is assumed to produce its own good and to issue its own interest-bearing bond. In limiting cases commodity arbitrage pegs the price of the good at purchasing power parity and financial arbitrage pegs the interest rate at interest parity.
In:
Handbook of international economics, Amsterdam : North Holland, 1985, (1985), Seite 859-916, 0444867937
In:
9780444867933
In:
year:1985
In:
pages:859-916
Language:
English
DOI:
10.1016/S1573-4404(85)02008-1
URL:
Volltext
(Deutschlandweit zugänglich)
