lecture 6 the M-F model 国际金融课件.ppt

Chinese Finance Research Institute VII. A SOE with perfect capital mobility VII.1 Fixed Exchange Rate Regime Monetary policy (Figure 1-3-8-1) Fiscal policy (Figure 1-3-8-2) Policy effectiveness As far as output growth is concerned, monetary policy is totally ineffective under a fixed rate regime, while an expansionary fiscal policy can lead to a larger increase of output than that under a floating rate economy. The M-F Model: A Graphical Illustration Figure 1-3-8-1 Monetary policy in a fixed regime i Y ie Ye IS LM? BP LM E B Figure 1-3-8-2 Fiscal policy in a fixed regime i Y ie Ye IS BP LM E B IS? LM? E? Ye? VII.2 Floating Exchange Rate Regime Monetary policy (Figure 1-3-9-1) Fiscal policy (Figure 1-3-9-2) Policy effectiveness Fiscal policy is totally ineffective under a floating rate regime, while monetary policy can lead to changes in output. A monetary expansion leads to a depreciation of home currency while an expansionary fiscal policy leads to the appreciation of home currency The M-F Model: A Graphical Illustration Figure 1-3-9-1 Monetary policy in a floating regime i Y ie Ye IS BP LM E LM? IS? E? Ye? Figure 1-3-9-2 Fiscal policy in a floating regime i Y ie Ye IS BP LM E IS? B VII.3 A Brief Summarization See Table 1-3-4. Table 1-3-4 Policy Effectiveness under Different Regimes Note: 1. Effectiveness here refers to the impact of a policy upon output. 2. See also the lecture on “fixed exchange rates and foreign exchange intervention” for another explanation of the effectiveness of monetary and fiscal policies under a fixed rate. The M-F Model: A Graphical Illustration The M-F Model: A Formal Illustration I. The Model I.1 Money Demand m-p=md-p=?0y- ?1i [1] I.2 Goods Market y=d=g+?1(s-p)+?2y-?3i, ?1, ?30, 0?21 [2] I.3 Balance of Payments b=?0(s-p)+?1y+?2y*+?3i+n [3] I.4 UIP The M-F Model: A Formal Illustration st+1e-st=i-i* [4]