《CH14Money-Interest-Rates-and-Exchange-rates(国际经济学-Iordanis-Petsas)》由会员分享，可在线阅读，更多相关《CH14Money-Interest-Rates-and-Exchange-rates(国际经济学-Iordanis-Petsas)（43页珍藏版）》请在金锄头文库上搜索。
1、CH14Money-Interest-CH14Money-Interest-Rates-and-Exchange-Rates-and-Exchange-rates(rates(国际经济学国际经济学- -Iordanis-Petsas)Iordanis-Petsas)IntroductionMoney Defined: A Brief ReviewThe Demand for Money by IndividualsAggregate Money DemandThe Equilibrium Interest Rate: The Interaction of Money Supply and De
2、mandChapter OrganizationCopyright 2003 Pearson Education, Inc.2The Money Supply and the Exchange Rate in the Short RunMoney, the Price Level, and the Exchange Rate in the Long RunInflation and Exchange Rate DynamicsSummaryChapter OrganizationCopyright 2003 Pearson Education, Inc.3IntroductionFactors
3、 that affect a countrys money supply or demand are among the most powerful determinants of its currencys exchange rate against foreign currencies.This chapter combines the foreign-exchange market with the money market to determine the exchange rate in the short run.It analyzes the long-term effects
4、of monetary changes on output prices and expected future exchange rates.Copyright 2003 Pearson Education, Inc.4Money Defined: A Brief ReviewMoney as a Medium of ExchangeA generally accepted means of paymentMoney as a Unit of AccountA widely recognized measure of valueMoney as a Store of ValueA trans
5、fer of purchasing power from the present into the futureCopyright 2003 Pearson Education, Inc.5What Is Money?Assets widely used and accepted as a means of payment.Money is very liquid, but pays little or no return.All other assets are less liquid but pay higher return.Money Supply (Ms)Ms = Currency
6、+ Checkable DepositsMoney Defined: A Brief ReviewCopyright 2003 Pearson Education, Inc.6How the Money Supply Is DeterminedAn economys money supply is controlled by its central bank.The central bank:Directly regulates the amount of currency in existence Indirectly controls the amount of checking depo
7、sits issued by private banks Money Defined: A Brief ReviewCopyright 2003 Pearson Education, Inc.7Three factors influence money demand:Expected returnRiskLiquidityExpected ReturnThe interest rate measures the opportunity cost of holding money rather than interest-bearing bonds.A rise in the interest
8、rate raises the cost of holding money and causes money demand to fall.The Demand for Money by IndividualsCopyright 2003 Pearson Education, Inc.8RiskHolding money is risky. An unexpected increase in the prices of goods and services could reduce the value of money in terms of the commodities consumed.
9、Changes in the risk of holding money need not cause individuals to reduce their demand for money.Any change in the riskiness of money causes an equal change in the riskiness of bonds.The Demand for Money by IndividualsCopyright 2003 Pearson Education, Inc.9LiquidityThe main benefit of holding money
10、comes from its liquidity.Households and firms hold money because it is the easiest way of financing their everyday purchases.A rise in the average value of transactions carried out by a household or firm causes its demand for money to rise.The Demand for Money by IndividualsCopyright 2003 Pearson Ed
11、ucation, Inc.10Aggregate Money DemandAggregate money demandThe total demand for money by all households and firms in the economy.It is determined by three main factors:Interest rateIt reduces the demand for money.Price levelIt raises the demand for money.Real national incomeIt raises the demand for
12、money.Copyright 2003 Pearson Education, Inc.11The aggregate demand for money can be expressed by: Md = P x L(R,Y) (14-1)where: P is the price levelY is real national incomeL(R,Y) is the aggregate real money demandEquation (14-1) can also be written as: Md/P = L(R,Y) (14-2)Aggregate Money DemandCopyr
13、ight 2003 Pearson Education, Inc.12Figure 14-1: Aggregate Real Money Demand and the Interest RateL(R,Y)Interest rate, RAggregate realmoney demandAggregate Money DemandCopyright 2003 Pearson Education, Inc.13Figure 14-2: Effect on the Aggregate Real Money Demand Schedule of a Rise in Real IncomeL(R,Y
14、2)Increase inreal incomeL(R,Y1)Interest rate, RAggregate realmoney demandAggregate Money DemandCopyright 2003 Pearson Education, Inc.14Equilibrium in the Money MarketThe condition for equilibrium in the money market is:Ms = Md (14-3)The money market equilibrium condition can be expressed in terms of
15、 aggregate real money demand as: Ms/P = L(R,Y) (14-4) The Equilibrium Interest Rate: The Interaction of Money Supply and DemandCopyright 2003 Pearson Education, Inc.15The Equilibrium Interest Rate: The Interaction of Money Supply and DemandFigure 14-3: Determination of the Equilibrium Interest RateA
16、ggregate realmoney demand,L(R,Y)Interest rate, RReal moneyholdingsReal money supplyMS P( = Q1)R2Q22R11R3Q33Copyright 2003 Pearson Education, Inc.16Interest Rates and the Money SupplyAn increase (fall) in the money supply lowers (raises) the interest rate, given the price level and output.The effect
17、of increasing the money supply at a given price level is illustrated in Figure 14-4.The Equilibrium Interest Rate: The Interaction of Money Supply and DemandCopyright 2003 Pearson Education, Inc.17M2 PR22M1 PReal money supplyReal moneysupply increaseThe Equilibrium Interest Rate: The Interaction of
18、Money Supply and DemandFigure 14-4: Effect of an Increase in the Money Supply on the Interest RateL(R,Y1)R11Interest rate, RReal moneyholdingsCopyright 2003 Pearson Education, Inc.18Output and the Interest RateAn increase (fall) in real output raises (lowers) the interest rate, given the price level
19、 and the money supply.Figure 14-5 shows the effect on the interest rate of a rise in the level of output, given the money supply and the price level.The Equilibrium Interest Rate: The Interaction of Money Supply and DemandCopyright 2003 Pearson Education, Inc.19Q21The Equilibrium Interest Rate: The
20、Interaction of Money Supply and DemandFigure 14-5: Effect on the Interest Rate of a Rise in Real IncomeL(R,Y1)L(R,Y2)Increase inreal incomeReal money supplyMS P( = Q1)R22R11Interest rate, RReal moneyholdingsCopyright 2003 Pearson Education, Inc.20The Money Supply and the Exchange Rate in the Short R
21、unShort run analysisThe price level and the real output are given.Long run analysisThe price level is perfectly flexible and always adjusted immediately to preserve full employment.Copyright 2003 Pearson Education, Inc.21Linking Money, the Interest Rate, and the Exchange RateThe U.S. money market de
22、termines the dollar interest rate, which in turn affects the exchange rate that maintains the interest parity.Figure 14-6 links the U.S. money market (bottom) and the foreign exchange market (top).The Money Supply and the Exchange Rate in the Short RunCopyright 2003 Pearson Education, Inc.22The Equi
23、librium Interest Rate: The Interaction of Money Supply and DemandFigure 14-6: Simultaneous Equilibrium in the U.S. Money Market and the Foreign-Exchange MarketReturn on dollar depositsExpectedreturn oneuro depositsL(R$, YUS)U.S. real money holdingsRates of return(in dollar terms)Dollar/euro exchange
24、 Rate, E$/0(increasing)ForeignexchangemarketMoneymarketE1$/1R1$1U.S. realmoneysupplyMSUS PUSCopyright 2003 Pearson Education, Inc.23The Equilibrium Interest Rate: The Interaction of Money Supply and DemandFigure 14-7: Money-Market/Exchange Rate LinkagesEuropean money marketUnited Statesmoney marketE
25、uropeEuropean System of Central BanksUnited StatesFederal Reserve System(United Statesmoney supply)MSUSMSE(European money supply)R$(Dollar interest rate)R(Euro interest rate)ForeignexchangemarketE$/(Dollar/Euro exchange rate)Copyright 2003 Pearson Education, Inc.24U.S. Money Supply and the Dollar/Eu
26、ro Exchange RateWhat happens when the Federal Reserve changes the U.S. money supply?An increase (decrease) in a countrys money supply causes its currency to depreciate (appreciate) in the foreign exchange market.The Equilibrium Interest Rate: The Interaction of Money Supply and DemandCopyright 2003
27、Pearson Education, Inc.25Increase in U.S.real money supplyExpectedreturn oneuro depositsThe Equilibrium Interest Rate: The Interaction of Money Supply and DemandFigure 14-8: Effect on the Dollar/Euro Exchange Rate and Dollar Interest Rate of an Increase in the U.S. Money SupplyE2$/2U.S. real money h
28、oldingsRates of return(in dollar terms)Dollar/euro exchange Rate, E$/0Return on dollar depositsL(R$, YUS)E1$/1R1$1M1US PUSR2$2M2US PUSCopyright 2003 Pearson Education, Inc.26Europes Money Supply and the Dollar/Euro Exchange RateAn increase in Europes money supply causes a depreciation of the euro (i
29、.e., appreciation of the dollar).A reduction in Europes money supply causes an appreciation of the euro (i.e., a depreciation of the dollar).The change in the European money supply does not disturb the U.S. money market equilibrium.The Equilibrium Interest Rate: The Interaction of Money Supply and D
30、emandCopyright 2003 Pearson Education, Inc.27Figure 14-9: Effect of an Increase in the European Money Supply on the Dollar/Euro Exchange RateIncrease in Europeanmoney supplyU.S. real money holdingsRates of return(in dollar terms)Dollar/euro exchange Rate, E$/0Expectedeuro returnL(R$, YUS)U.S. realmo
31、neysupplyMSUS PUSR1$1E1$/1Dollar returnThe Equilibrium Interest Rate: The Interaction of Money Supply and DemandE2$/2Copyright 2003 Pearson Education, Inc.28Money, the Price Level, and the Exchange Rate in the Long RunLong-run equilibriumPrices are perfectly flexible and always adjusted immediately
32、to preserve full employment.Money and Money PricesThe money market equilibrium (Equation 14-4) can be rearranged to give the long-run equilibrium price level: P = Ms/L(R,Y) (14-5)An increase in a countrys money supply causes a proportional increase in its price level. Copyright 2003 Pearson Educatio
33、n, Inc.29The Long-Run Effects of Money Supply ChangesA change in the supply of money has no effect on the long-run values of the interest rate or real output.A permanent increase in the money supply causes a proportional increase in the price levels long-run value. This prediction is based on the mo
34、ney market equilibrium condition: Ms/P = L or P = Ms/L.This condition implies that P/P = Ms/Ms - L/L.The inflation rate equals the monetary growth rate less the growth rate for money demand.Money, the Price Level, and the Exchange Rate in the Long RunCopyright 2003 Pearson Education, Inc.30Empirical
35、 Evidence on Money Supplies and Price LevelsIn a cross-section of countries, long-term changes in money supplies and price levels show a clear positive correlation.Money, the Price Level, and the Exchange Rate in the Long RunCopyright 2003 Pearson Education, Inc.31Figure 14-10: Monetary Growth and P
36、rice-Level Change in the Seven Main Industrial Countries, 1973-1997Money, the Price Level, and the Exchange Rate in the Long RunCopyright 2003 Pearson Education, Inc.32Money and the Exchange Rate in the Long RunA permanent increase (decrease) in a countrys money supply causes a proportional long-run
37、 depreciation (appreciation) of its currency against foreign currencies.Money, the Price Level, and the Exchange Rate in the Long RunCopyright 2003 Pearson Education, Inc.33Inflation and Exchange Rate DynamicsInflationA situation where an economys price level rises.DeflationA situation where an econ
38、omys price level falls.Short-Run Price Rigidity versus Long-Run Price FlexibilityThe short-run “stickiness” of price levels is illustrated in Figure 14-11.Copyright 2003 Pearson Education, Inc.34 Figure 14-11: Month-to-Month Variability of the Dollar/DM Exchange Rate and of the U.S./German Price-Lev
39、el Ratio, 1974-2001Inflation and Exchange Rate DynamicsCopyright 2003 Pearson Education, Inc.35A change in the money supply creates demand and cost pressures that lead to future increases in the price level from three main sources:Excess demand for output and laborInflationary expectationsRaw materi
40、als pricesInflation and Exchange Rate DynamicsCopyright 2003 Pearson Education, Inc.36Permanent Money Supply Changes and the Exchange RateHow does the dollar/euro exchange rate adjust to a permanent increase in the U.S. money supply?Figure 14-12 shows both the short-run and long-run effects of the i
41、ncrease in the U.S. money supply.Inflation and Exchange Rate DynamicsCopyright 2003 Pearson Education, Inc.37Figure 14-12: Effects of an Increase in the U.S.Money Supply Dollar returnDollar returnM1US P1USM2US P1USU.S. real money supplyM2US P2USM2US P1USDollar/euro exchangeRate, E$/Rates of return(i
42、n dollar terms)U.S. real money holdings0(a) Short-run effects0(b) Adjustment to long- run equilibriumDollar/euro exchangeRate, E$/U.S. real money holdingsE2$/2E3$/4R1$4R2$2R1$1Inflation and Exchange Rate Dynamics32E2$/Expectedeuro returnExpectedeuro returnL(R$, YUS)R2$2L(R$, YUS)E1$/1Copyright 2003
43、Pearson Education, Inc.38Figure 14-13: Time Paths of U.S. Economic Variables After a Permanent Increase in the U.S. Money SupplyInflation and Exchange Rate DynamicsP2USE3$/E1$/t0(a) U.S. money supply, MUSTime(c) U.S. price level, PUSTime(b) Dollar interest rate, R$TimeM1USt0t0R1$M2USP1USt0R2$E2$/(d)
44、 Dollar/euro exchange rate, E$/TimeCopyright 2003 Pearson Education, Inc.39Exchange Rate OvershootingThe exchange rate is said to overshoot when its immediate response to a disturbance is greater than its long-run response.It helps explain why exchange rates move so sharply form day to day.It is a d
45、irect result of sluggish short-run price level adjustment and the interest parity condition.Inflation and Exchange Rate DynamicsCopyright 2003 Pearson Education, Inc.40SummaryMoney is held because of its liquidity.Aggregate real money demand depends negatively on the opportunity cost of holding mone
46、y and positively on the volume of transactions in the economy.The money market is in equilibrium when the real money supply equals aggregate real money demand.By lowering the domestic interest rate, an increase in the money supply causes the domestic currency to depreciate in the foreign exchange ma
47、rket.Copyright 2003 Pearson Education, Inc.41Permanent changes in the money supply push the long-run equilibrium price level proportionally in the same direction.These changes do not influence the long-run values of output, the interest rate, or any relative prices.An increase in the money supply can cause the exchange rate to overshoot its long-run level in the short run.SummaryCopyright 2003 Pearson Education, Inc.42结束结束
