ORCID
- Peijie Wang: 0000-0002-6921-5937
Abstract
This paper contributes to the literature through developing a model of exchange rate adjustments in a dynamic IS-LM-X analytical framework. Our new model, in particular, a) makes the IS-LM model dynamic; b) endogenizes the exchange rate and price variables and; c) extends the dynamic IS and LM components into the external sector in an open economy that evolves over time. The effect of a change in monetary policy on the exchange rate is evaluated and the trajectory towards its new long-run equilibrium level is projected. These are in contrast to the traditional monetary models of exchange rate determination and adjustments that play primarily with the LM component of the IS-LM framework in discrete steps. Effects of interest rate parity and purchasing power parity are then scrutinized, ranging from the short-term to the long-run continuously. The study has profound policy implications, especially in an era of quantitative easing.
Publication Date
2017-01-01
Publication Title
International Economics
Volume
149
ISSN
2110-7017
Embargo Period
2018-06-10
First Page
74
Last Page
86
Recommended Citation
Wang, P. (2017) 'A dynamic IS-LM-X model of exchange rate adjustments and movements', International Economics, 149, pp. 74-86. Available at: 10.1016/j.inteco.2016.12.001
