Exchange Rates and Portfolio Balance / John R. Martin, Paul R. Masson.

Format:

Book

Author/Creator:

Martin, John R.

Contributor:

National Bureau of Economic Research.

Masson, Paul R.

Series:

Working Paper Series (National Bureau of Economic Research) no. w0377.

NBER working paper series no. w0377

Language:

English

Subjects (All):

Foreign exchange--Mathematical models.

Foreign exchange.

International finance--Mathematical models.

International finance.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1979.

Cambridge, Massachusetts : National Bureau of Economic Research, 1979.

Summary:

An open economy portfolio balance model, describing allocation among money, a domestic bond, and a traded foreign currency bond is developed for a world of many countries. A special role is attributed to the dollar, namely that all internationally traded bonds are denominated in that currency. It is shown that in the short run with real variables exogenous and expectations static, stability requires that all countries except the U.S. be net creditors in dollar-denominated bonds. What data are available on inter-country claims suggest that some countries may well be net debtors abroad in foreign currency. In particular, if one excludes direct investment claims, private claims on the rest of the world by Japan and Canada have been negative over the period of floating rates since 1973. However, some preliminary reduced-form regression equations for the dollar exchange rates of these two countries do not support the implications of the portfolio balance model in the debtor case. On the other hand, an equation for a composite of Western European currencies (by our calculations, this group of countries is a net creditor) gives more promising results.

Notes:

Print version record

August 1979.