Slide 16-1Copyright © 2003 Pearson Education, Inc. Introduction Output market Asset market :...

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Copyright © 2003 Pearson Education, Inc.

Introduction

Output marketAsset market :

Foreign exchange market & money market

DD schedule:

Relates E&Y that keep the output market in equilibrium 說明

E

AA schedule:

Relates E&Y that keep the asset market in equilibrium

Y

Intersection of DD and AA:

Short-run equilibrium for an open economy

Output market

3


模型目的。內生變數：決定模型兩軸。行為法則：畫出模型曲線。均衡：決定均衡之內生變數。外生衝擊

• 判斷是否為外生變數改變？• 判斷此外生變數之改變將影響哪些行為法則？• 判斷此外生變數之改變造成行為法則何種影響？

學習經濟模型五步驟

內生變數

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內生變數

Output, Y

Exchange Rate, E

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模型目的。內生變數：決定模型兩軸。行為法則：畫出模型曲線。均衡：決定均衡之內生變數。外生衝擊

• 判斷是否為外生變數改變？• 判斷此外生變數之改變將影響哪些行為法則？• 判斷此外生變數之改變造成行為法則何種影響？

學習經濟模型五步驟

行為法則

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Deriving the DD Schedule• DD schedule

– It shows all combinations of output and the exchange rate for which the output market is in short-run equilibrium (aggregate demand = aggregate output).

Output Market Equilibrium in the Short Run: The DD Schedule

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Copyright © 2003 Pearson Education, Inc. Y2

DD


Figure 16-4: Deriving the DD Schedule

Output, Y

Aggregate demand, D D = Y

Y1

Aggregate demand (E1)

Y2

Output, Y

Exchange rate, E

Y1

1E1

E2

2

Aggregate demand (E2)

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It slopes upward because a rise in the exchange rate causes output to rise.

Factors that Shift the DD Schedule• Government purchases

• Taxes

• Investment

• Domestic price levels

• Foreign price levels

• Consumption function

• Demand shift between foreign and domestic goods


This equation shows that aggregate demand for home output can be written as:

D = D(EP*/P, Y – T, I, G) (+) (+) (+)(+)

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Figure 16-5: Government Demand and the Position of the DD ScheduleD = Y

Y1

D(E0P*/P, Y – T, I, G2)

D(E0P*/P, Y – T, I, G1)

Y2

Output, Y

Exchange rate, E

Y1

Aggregate demand curves

2

Government spending rises

Output, Y

Aggregate demand, D

DD1

E01

DD2

10


A disturbance that raises (lowers) aggregate demand for domestic output shifts the DD schedule to the right (left).


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A disturbance that raises (lowers) aggregate demand for domestic output shifts the DD schedule to the right (left).


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Introduction



DD schedule:

Relates E&Y that keep the output market in equilibrium

E

AA schedule:


Y



DD schedule:


Asset market :


AA schedule:


13


AA Schedule• It shows all combinations of exchange rate and output

that are consistent with equilibrium in the domestic money market and the foreign exchange market.

Asset Market Equilibrium in the Short Run: The AA Schedule

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Output, the Exchange Rate, and Asset Market Equilibrium• We will combine the interest parity condition with the

money market to derive the asset market equilibrium in the short-run.

• The interest parity condition describing foreign exchange market equilibrium is:

R = R* + (Ee – E)/E

where: Ee is the expected future exchange rate

R is the interest rate on domestic currency deposits

R* is the interest rate on foreign currency deposits


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• The R satisfying the interest parity condition must also equate the real domestic money supply to aggregate real money demand:

Ms/P = L(R, Y)

• Aggregate real money demand L(R, Y) rises when the interest rate falls because a fall in R makes interest-bearing nonmoney assets less attractive to hold.


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L(R, Y2)

Output rises


Figure 16-6: Output and the Exchange Rate in Asset Market Equilibrium

E2 2'

R2

2

Domestic-currency return on foreign-currency deposits

1

Foreignexchangemarket

Moneymarket

E1 1'

R1

Real moneysupply

MS

P

L(R, Y1)

Real domestic money holdings

Domestic interestrate, R

Exchange Rate, E

0

Return on domestic-currencydollar deposits

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For asset markets to remain in equilibrium:• A rise in domestic output must be accompanied by an

appreciation of the domestic currency.

• A fall in domestic output must be accompanied by a depreciation of the domestic currency.


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Deriving the AA Schedule• It relates exchange rates and output levels that keep the

money and foreign exchange markets in equilibrium.

• It slopes downward because a rise in output causes a rise in the home interest rate and a domestic currency appreciation.


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Figure 16-7: The AA Schedule

Output, Y

Exchange Rate, E


AA

Y1

E11

Y2

E22

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Factors that Shift the AA Schedule 說明• Domestic money supply

• Domestic price level

• Expected future exchange rate

• Foreign interest rate

• Shifts in the aggregate real money demand schedule


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Asset Market Equilibrium in the Short Run: The AA ScheduleFigure 16-6: Output and the Exchange Rate in Asset Market

Equilibrium返回

Domestic-currency return on foreign-currency deposits

Foreignexchangemarket

Moneymarket

E1 1'

R1

Real moneysupply

MS

P 1

L(R, Y1)

Real domestic money holdings

Domestic interestrate, R

Exchange Rate, E

0

Return on domestic-currencydollar deposits

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Increase in U.S.real money supply

Expectedreturn oneuro deposits

A Temporary Increase In The Money Supply

Figure 14-8: Effect on the Dollar/Euro Exchange Rate and Dollar Interest Rate of an Increase in the U.S. Money Supply 返回

E2$/€ 2'

U.S. real money holdings

Rates of return(in dollar terms)

Dollar/euro exchange Rate, E$/€

0

Return on dollar deposits

L(R$, YUS)

E1$/€

1'

R1$

1

M1US

PUS

R2$

2M2

US

PUS

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Output, Y

Exchange Rate, E

AA2

AA1

1E1

Y1

A Temporary Increase In The Money Supply

2E3

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Introduction



DD schedule:


E

AA schedule:


Y



AA schedule:



Short-run equilibrium for an open economy 說明

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Short-Run Equilibrium for an Open Economy: Putting the DD and AA Schedules Together

A short-run equilibrium for the economy as a whole must bring equilibrium simultaneously in the output and asset markets.• That is, it must lie on both DD and AA schedules.

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Figure 16-8: Short-Run Equilibrium: The Intersection of DD and AA

Output, Y

Exchange Rate, E

AA

Y1

E11

Short-Run Equilibrium for an Open Economy: Putting the DD and AA Schedules Together

DD

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