Simple open economy macro with comprehensive accounting: a two country model
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Authors
Godley, Wynne
Lavoie, Marc
Publication Date
2005-02Series
CFAP Working Paper
20
Publisher
CFAP, Cambridge Judge Business School, University of Cambridge
Language
English
Type
Working Paper
Metadata
Show full item recordCitation
Godley, W., & Lavoie, M. (2005). Simple open economy macro with comprehensive accounting: a two country model. http://www.dspace.cam.ac.uk/handle/1810/225164
Abstract
This paper presents a stock flow model of two economies (together comprising the whole world) which trade goods and financial assets with one another. The accounting framework, though comprehensive in its own terms, is very much simplified so as to reach the main conclusions as simply and easily as possible. The first part of the paper describes a single-economy on a fixed exchange rate, with no private capital flows, in order to obtain simple analytic solutions which display the basic constraints and forces at work. The second part describes a flexible exchange rate model, with two economies trading financial assets as well as merchandise. A final section adapts the two country model to describe a fixed exchange rate regime. In all models interest rates are exogenous and the money supply is (found to be) endogenous.
Keywords
open economy macroeconomics, stocks and flows, two country models, exchange rate determination in asset markets
Identifiers
This record's URL: http://www.dspace.cam.ac.uk/handle/1810/225164