Real Interest Rates, Real Exchange Rates, and Net Foreign Assets in the Adjustment Process

Author/Editor:

Bart Turtelboom ; Thomas Helbling

Publication Date:

December 1, 1995

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper analyzes the recent behavior of real exchange rates, the trade balance and the net foreign asset position of the United States in an intertemporal optimizing model of the world economy that incorporates heterogeneity across countries and imperfect international capital and good markets. While the model successfully tracks the dynamics of trade balances and net foreign assets it generates too much consumption smoothing and excessively volatile relative prices. Resolving these inadequacies simultaneously is difficult as the elasticity of substitution between tradables and nontradables affects in opposite ways the degree of consumption smoothing and the volatility of relative prices.

Series:

Working Paper No. 95/129

Subject:

English

Publication Date:

December 1, 1995

ISBN/ISSN:

9781451934731/1018-5941

Stock No:

WPIEA1291995

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

38

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