Download T7: El tipo de cambio nominal: El modelo de activos

Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
T7: El tipo de cambio nominal:
El modelo de activos
Carlos Llano
Referencias:
• Tema 5 del Programa.
• Capítulo 4 de Feenstra&Taylor (2011)
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Introduction
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
• Importantes desviaciones respecto de la PPA se
producen en el corto plazo: la misma cesta de bienes en
general, no cuesta lo mismo en todas partes en todo
momento.
• Estas desviaciones a corto plazo del enfoque monetario
han promovido el desarrollo de una teoría alternativa
para explicar los tipos de cambio en el corto plazo: el
enfoque de activos.
• Se basa en la idea de que las monedas son activos.
• El precio del activo en este caso es el tipo de cambio.
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Exchange Rates and Interest Rates in the Short Run:
UIP and FX Market Equilibrium
El Arbitraje con Riesgo
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
La PDI es la ecuación fundamental del enfoque de
activos:
(15-1)
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Exchange Rates and Interest Rates in the Short Run:
UIP and FX Market Equilibrium
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-1
Building Block: Uncovered Interest Parity—The Fundamental Equation of the
Asset Approach In this model, the nominal interest rate and expected future
exchange rate are treated as known exogenous variables (in green).
The model uses these variables to predict the unknown endogenous variable (in
red), the current spot exchange rate.
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Exchange Rates and Interest Rates in the Short Run:
UIP and FX Market Equilibrium
TABLE 15-1
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
Interest Rates, Exchange Rates, Expected Returns, and FX Market Equilibrium: A
Numerical Example
The foreign exchange (FX) market is in equilibrium when the domestic and foreign returns
are equal. In this example, the dollar interest rate is 5%, the euro interest rate is 3%, and
the expected future exchange rate (one year ahead) is = 1.224 $/€. The equilibrium is
highlighted in bold type, where both returns are 5% in annual dollar terms. Figure 12-2
plots the domestic and foreign returns (columns 1 and 6) against the spot exchange rate
(column 3). Figures are rounded in this table.
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Exchange Rates and Interest Rates in the Short Run:
UIP and FX Market Equilibrium
Equilibrium in the FX Market: An Example
FIGURE 15-2
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FX Market Equilibrium: A
Numerical Example
The returns calculated in
Table 15-1 are plotted in
this figure.
The dollar interest rate is
5%, the euro interest rate
is 3%, and the expected
future exchange rate is
1.224 $/€.
The foreign exchange
market is in equilibrium at
point 1, where the
domestic returns DR and
expected foreign returns
FR are equal at 5% and
the spot exchange rate is
1.20 $/€.
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Exchange Rates and Interest Rates in the Short Run:
UIP and FX Market Equilibrium
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
Cambios en Los Retornos Domésticos y
Extranjeros y en el Equilibrio del Mercado FX
Para lograr una mayor familiaridad con el modelo, veamos
como el mercado FX market de la Figure 15-2 es ajusta
ante los siguientes 3 shocks, que apuntan en la misma
dirección:
■ Un incremento en el tipo de interés doméstico, i$ = 7%
■ Un menor tipo de interés extranjero, i€ = 1%
■ Una caída del Tipo de Cambio Esperado,
Ee$/€ = 1.20 $/€
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Exchange Rates and Interest Rates in the Short Run:
UIP and FX Market Equilibrium
Changes in Domestic and Foreign Returns and FX Market Equilibrium
A Change in the Domestic Interest Rate
FIGURE 15-3 (1 of 3)
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
(a) A Change in the Home
Interest Rate
A rise in the dollar
interest rate from 5% to
7% increases domestic
returns, shifting the DR
curve up from DR1 to DR2.
At the initial equilibrium
exchange rate of 1.20 $/€
on DR2, domestic returns
are above foreign returns
at point 4.
Dollar deposits are more
attractive and the dollar
appreciates from 1.20 $/€
to 1.177 $/€. The new
equilibrium is at point 5.
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Exchange Rates and Interest Rates in the Short Run:
UIP and FX Market Equilibrium
Changes in Domestic and Foreign Returns and FX Market Equilibrium
A Change in the Foreign Interest Rate
FIGURE 15-3 (2 of 3)
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
(b) A Change in the
Foreign Interest Rate
A fall in the euro interest
rate from 3% to 1%
lowers foreign expected
dollar returns, shifting the
FR curve down from FR1
to FR2.
At the initial equilibrium
exchange rate of 1.20 $/€
on FR2, foreign returns
are below domestic
returns at point 6.
Dollar deposits are more
attractive and the dollar
appreciates from 1.20 $/€
to 1.177 $/€. The new
equilibrium is at point 7.
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Exchange Rates and Interest Rates in the Short Run:
UIP and FX Market Equilibrium
Changes in Domestic and Foreign Returns and FX Market Equilibrium
A Change in the Expected Future Exchange Rate
FIGURE 15-3 (3 of 3)
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
(c) A Change in the
Expected Future
Exchange Rate
A fall in the expected future
exchange rate from 1.224 to
1.20 lowers foreign
expected dollar returns,
shifting the FR curve down
from FR1 to FR2.
At the initial equilibrium
exchange rate of 1.20 $/€
on FR2, foreign returns are
below domestic returns at
point 6.
Dollar deposits are more
attractive and the dollar
appreciates from 1.20 $/€ to
1.177 $/€. The new
equilibrium is at point 7.
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Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
2 Interest Rates in the Short Run:
Money Market Equilibrium
Money Market Equilibrium in the Short Run: How
Nominal Interest Rates Are Determined
Las Hipótesis
En este capítulo, las hipótesis del Corto-Plazo será muy
diferentes a las del Largo Plazo asumidas en el “enfoque
monetario” :
■ En el Corto Plazo, los Precios son rígidos (sticky); es una
variable conocida y determinada. [P=cte]
■ En el Corto Plazo, el tipo de interés nominal i es
totalmente flexible, y se ajusta para alcanzar el equilibrio
en el mercado de dinero.
• Que P=cte, equivale a suponer que existe “rigidez
nominal”, algo común a los enfoque
macroeconómicos de corto plazo.
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Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
2 Interest Rates in the Short Run:
Money Market Equilibrium
Money Market Equilibrium in the Short Run: How
Nominal Interest Rates Are Determined
El Modelo
Las expresiones para el mercado de dinero en ambos
países serán las siguientes:
M US
PUS

 L(i$ )  YUS




U.S. supply of
real money balances

M EUR
PEUR

European supply of
real money balances
(15-2)
U.S. demand for
real money balances
 L (i )  YEUR

(15-3)
European demand for
real money balances
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2 Interest Rates in the Short Run:
Money Market Equilibrium
Money Market Equilibrium in the Short Run: Graphical Solution
FIGURE 15-4 (1 of 2)
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
Equilibrium in the Home
Money Market
The supply and demand for
real money balances
determine the nominal
interest rate.
The money supply curve
—
(MS) is vertical at M1US/PUS
because the quantity of
money supplied does not
depend on the interest rate.
The money demand curve
(MD) is downward-sloping
because an increase in the
interest rate raises the cost
of holding money, thus
lowering the quantity
demanded.
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2 Interest Rates in the Short Run:
Money Market Equilibrium
Money Market Equilibrium in the Short Run: Graphical Solution
FIGURE 15-4 (2 of 2)
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
Equilibrium in the Home
Money Market
The money market is in
equilibrium when the
nominal interest rate i1$ is
such that real money
demand equals real money
supply (point 1).
At points 2 and 3, demand
does not equal supply and
the interest rate will adjust
until the money market
returns to equilibrium.
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2 Interest Rates in the Short Run:
Money Market Equilibrium
Another Building Block: Short-Run
Money Market Equilibrium
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-5
Building Block: The Money Market Equilibrium in the Short Run
In these models, the money supply and real income are known exogenous
variables (in green boxes).
The models use these variables to predict the unknown endogenous variables (in
red boxes), the nominal interest rates in each country.
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2 Interest Rates in the Short Run:
Money Market Equilibrium
Changes in Money Supply and the Nominal Interest Rate
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-6 (1 of 2)
Home Money Market with Changes in Money Supply and Money Demand
—
In panel (a), with a fixed price level P1US, an increase in nominal money supply
—
from —
M1US to M2US causes an increase in real money supply from M1US/P1US to
M2US/P1US.
The nominal interest rate falls from i1$ to i2$ to restore equilibrium at point 2.
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2 Interest Rates in the Short Run:
Money Market Equilibrium
Changes in Money Supply and the Nominal Interest Rate
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-6 (2 of 2)
Home Money Market with Changes in Money Supply and Money Demand
(continued)
—
In panel (b), with a fixed price level P1US, an increase in real income from Y1US to
Y2US causes real money demand to increase from MD1 to MD2.
To restore equilibrium at point 2, the interest rate rises from i1$ to i2$.
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2 Interest Rates in the Short Run:
Money Market Equilibrium
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
The Monetary Model: The Short Run versus the Long Run
Supongamos que El banco Central de “Home”, que
mantenía la Oferta de Dinero constante, aplica una política
monetaria expansiva repentina, incrementando M un 5%.
■ Si se espera que dicho incremento sea permanente en el
largo plazo, las predicciones del Efecto Fisher prevén:
que el tipo de interés en Home subirá en el Largo
Plazo.
■ Si esta expansión de M es temporal, entonces, se
produce un exceso de oferta de los saldos reales, y
entonces el tipo de interés cae en el corto plazo.
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3 The Asset Approach: Applications and Evidence
The Asset Approach to Exchange Rates: Graphical Solution
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-7 (1 of 2)
Home Money Market with Changes in Money Supply and Money Demand
The figure summarizes the equilibria in the two asset markets in one diagram.
In panel (a), in the home (U.S.) money market, the home nominal interest rate i1$ is
determined by the levels of real money supply MS and demand MD with equilibrium
at point 1.
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3 The Asset Approach: Applications and Evidence
The Asset Approach to Exchange Rates: Graphical Solution
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-7 (2 of 2)
Home Money Market with Changes in Money Supply and Money Demand
In panel (b), in the dollar-euro FX market, the spot exchange rate E1$/€ is determined
by foreign and domestic expected returns, with equilibrium at point 1′. Arbitrage
forces the domestic and foreign returns in the FX market to be equal, a result that
depends on capital mobility.
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Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
3 The Asset Approach: Applications and Evidence
La movilidad de Capital es crítica
• Nuestra hipótesis de que DR = FR depende de la
movilidad de capital.
• Si existieran controles de cambio, no habría arbitraje, y
DR no tendría que igualar a FR.
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3 The Asset Approach: Applications and Evidence
Short-Run Policy Analysis
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-8 (1 of 2)
Temporary Expansion of the Home Money Supply
In panel (a), in the Home money market, an increase in Home money supply from
—
—
M1US to M2US causes an increase in real money supply from M1US/P1US to M2US/P1US.
To keep real money demand equal to real money supply, the interest rate falls
from to i1$ to i2$, and the new money market equilibrium is at point 2.
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3 The Asset Approach: Applications and Evidence
Short-Run Policy Analysis
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-8 (2 of 2)
Temporary Expansion of the Home Money Supply
In panel (b), in the FX market, to maintain the equality of domestic and foreign
expected returns, the exchange rate rises (the dollar depreciates) from E1$/€ to
E2$/€, and the new FX market equilibrium is at point 2′.
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3 The Asset Approach: Applications and Evidence
Short-Run Policy Analysis
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-9 (1 of 2)
Temporary Expansion of the Foreign Money Supply
In panel (a), there is no change in the Home money market. In panel (b), an
increase in the Foreign money supply causes the Foreign (euro) interest rate to fall
from i1€ to i2€.
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3 The Asset Approach: Applications and Evidence
Short-Run Policy Analysis
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-9 (2 of 2)
Temporary Expansion of the Foreign Money Supply (continued)
For a U.S. investor, this lowers the foreign return i€ + (Ee$/ € − E$/€)/E$/€, all else
equal. To maintain the equality of domestic and foreign returns in the FX market,
the exchange rate falls (the dollar appreciates) from E1$/€ to E2$/€, and the new FX
market equilibrium is at point 2′.
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APPLICATION The Rise and Fall of the Dollar, 1999–2004
FIGURE 15-10
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
U.S.–Eurozone Interest Rates
and Exchange Rates, 1999–2004
From the euro’s birth in 1999
until 2001, the dollar steadily
appreciated against the euro, as
interest rates in the United
States were raised well above
those in Europe. In early 2001,
however, the Federal Reserve
began a long series of interest
rate reductions. By 2002 the Fed
Funds rate was well below the
ECB’s refinancing rate.
Theory predicts a dollar
appreciation (1999–2001) when
U.S. interest rates were
relatively high, followed by a
dollar depreciation (2001–2004)
when U.S. interest rates were
relatively low. Looking at the
figure, you will see that this is
what occurred.
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4 Una Teoría Completa: la integración del enfoque
monetario y de Activos
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
Para disponer de una teoría unificada para el tipo de
cambio:
■ Integramos el enfoque de Activos (corto plazo) y la PDI:


PUS  M US /[ LUS ( i$ )YUS ]


PEUR  M EUR /[ L EUR ( i )Y EUR ] The asset approach

E $e / €  E $e / €

i$  i € 

E$ / €
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(15-4)
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4 A Complete Theory: Unifying the Monetary and
Asset Approaches
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
■
Para predecir el tipo de cambio esperado,
utilizaremos el enfoque monetario de largo plazo, que
asume el cumplimiento de la PPA:


e
e
e
 M EUR /[ L EUR (i )YEUR ] The monetary approach

e
 PUSe / PEUR

e
PUSe  M US
/[ LUS (i$e )YUSe ]
e
PEUR
E $e/ €
(15-5)
• Ahora tendremos que entender cómo interactúan las
“expectativas” y el “arbitraje” para determinar el tipo de
cambio en el corto y largo plazo.
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4 A Complete Theory
FIGURE 15-11
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
•
•
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Inputs :
exogenous
variables (in
green).
Outputs:
unknown
endogenous
variables (in
red).
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4 A Complete Theory
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-12 (1 of 4)
Permanent Expansion of the Home Money Supply Short-Run Impact:
In panel (a), the home price level is fixed, but the supply of dollar balances
increases and real money supply shifts out. To restore equilibrium at point 2, the
interest rate falls from i1$ to i2$.
In panel (b), in the FX market, the home interest rate falls, so the domestic return
decreases and DR shifts down. In addition, the permanent change in the home
money supply implies a permanent, long-run depreciation of the dollar.
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4 A Complete Theory: Unifying the Monetary and
Asset Approaches
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-12 (2 of 4)
Permanent Expansion of the Home Money Supply Short-Run Impact: (continued)
Hence, there is also a permanent rise in Ee$/€, which causes a permanent increase
in the foreign return i€ + (Ee$/€ − E$/€)/E$/€ , all else equal; FR shifts up from FR1 to
FR2.
The simultaneous fall in DR and rise in FR cause the home currency to depreciate
steeply, leading to a new equilibrium at point 2′ (and not at 3′, which would be the
equilibrium if the policy were temporary).
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4 A Complete Theory: Unifying the Monetary and
Asset Approaches
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-12 (3 of 4)
Long-Run Adjustment:
In panel (c), in the long run, prices are flexible, so the home price level and the
—
exchange rate both rise in proportion with the money supply. Prices rise to P2US, and
—
real money supply returns to its original level M1US/P1US.
The money market gradually shifts back to equilibrium at point 4 (the same as point
1).
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4 A Complete Theory: Unifying the Monetary and
Asset Approaches
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-12 (4 of 4)
Long-Run Adjustment: (continued) In panel (d), in the FX market, the domestic
return DR, which equals the home interest rate, gradually shifts back to its original
level. The foreign return curve FR does not move at all: there are no further changes
in the Foreign interest rate or in the future expected exchange rate.
The FX market equilibrium shifts gradually to point 4′. The exchange rate falls (and
the dollar appreciates) from E2$/€ to E4$/€. Arrows in both graphs show the path of
gradual adjustment.
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4 A Complete Theory: Unifying the Monetary and
Asset Approaches
Overshooting
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-13 (1 of 2)
Responses to a Permanent Expansion of the Home Money Supply
In panel (a), there is a one-time permanent increase in home (U.S.) nominal money
supply at time T.
In panel (b), prices are sticky in the short run, so there is a short-run increase in
the real money supply and a fall in the home interest rate.
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4 A Complete Theory: Unifying the Monetary and
Asset Approaches
Overshooting
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-13 (2 of 2)
Responses to a Permanent Expansion of the Home Money Supply (continued)
In panel (c), in the long run, prices rise in the same proportion as the money
supply.
In panel (d), in the short run, the exchange rate overshoots its long-run value (the
dollar depreciates by a large amount), but in the long run, the exchange rate will
have risen only in proportion to changes in money and prices.
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4 A Complete Theory: Unifying the Monetary and
Asset Approaches
Overshooting in Practice
FIGURE 15-14
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
Exchange Rates for
Major Currencies
before and after
1973
Under the Bretton
Woods system of
fixed but adjustable
dollar pegs,
exchange rates were
mostly stable from
1950 until 1970.
The system was
declared officially
dead in 1973. From
then on, all of these
currencies have
fluctuated against
the dollar.
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5 Fixed Exchange Rates and the Trilemma
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
Tipos de cambios Fijos
• Nos hemos centrado en tipos de cambio flexibles sin
control de cambios (capital perfectamente móvil)
• Con tipo de cambio fijo, los Bancos Centrales compran y
venden divisa para mantener E=cte.
• Foreign (EU); Home (Dinamarca).
• Analicemos las implicaciones de mantener un tipo de
cambio fijo entre la Corona Danesa y el Euro: EDKr/€
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5 Fixed Exchange Rates and the Trilemma
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
What Is a Fixed Exchange Rate Regime?
• En el largo plazo, un tipo de cambio fijo actúa como un
“ancla nominal”. Por lo que Dinamarca tendrá
restricciones a aplicar una política monetaria autónoma
con el objetivo de lograr este “objetivo nominal”.
• Ahora bien, con tipo de cambio fijo, estas limitaciones en
la política monetaria se dan también en el “corto plazo”.
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5 Fixed Exchange Rates and the Trilemma
Pegging Sacrifices Monetary Policy Autonomy
in the Short Run: Example
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
El tipo de interés nominal de Dinamarca será = i€:
iDKr
e
E DKr
/ €  E DKr / €
 i€ 
i
E DKr / €

Equals zero
for a credible
fixed exchange rate
Dinamarca pierde su control monetario.
M DEN  PDEN LDEN (iDKr )YDEN  PDEN LDEN (i€ )YDEN
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Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
5 Fixed Exchange Rates and the Trilemma
■ Con tipo de cambio flexible:
• La autoridad monetaria de Home establece M.
• En el corto plazo, la elección de M determinar el tipo
de interés i en el mercado de dinero.
• Como consecuencia, vía la PDI, i determina E.
• M es exógeno; E es endógena.
■ Con tipo de cambio fijo:
• La autoridad monetaria de Home establece E.
• En el corto plazo, un E=cte determina el tipo de
interés I a través de la PDI. (i = i*);
• Como consecuencia, i determina M.
• E es un input del modelo (exógena); M (output;
endógena).
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5 Fixed Exchange Rates and the Trilemma
FIGURE 15-15
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
•
•
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Inputs :
exogenous
variables (in
green).
Outputs:
unknown
endogenous
variables (in
red).
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5 Fixed Exchange Rates and the Trilemma
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
Pegging Sacrifices Monetary Policy Autonomy
in the Long Run: Example
• El nivel de Precios en Dinamarca lo determina la PPA (en
el largo plazo). Pero si el E=cte, la PPA será:
PDEN  EDKr / € PEUR
• Con los precios y los tipos de interés a largo plazo fuera
del control de Dinamarca, la independencia monetaria no
es posible
iDKr  i€
PDEN  EDKr / € PEUR
M DEN  PDEN LDEN (iDKr )YDEN  EDKr / € PEUR LDEN (i € )YDEN
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5 Fixed Exchange Rates and the Trilemma
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
El razonamiento de LP se mantiene, pero cambia la
causalidad:
■ Con tipo Flexible:
•
•
•
•
El B. Central determina M.
En el LP, el aumento de M determina P, e i vía el Efecto Fisher;
Como consecuencia, vía PPA, P determina E.
M es un input (exógeno); E es un output (endógeno).
■ Con tipo de cambio Fijo:
•
•
•
•
El B. Central de Home determina E.
En el LP, E determina P vía la PPA, y también i vía PDI;
Como consecuencia, la cantidad de M.
E será un input del modelo (exógeno); M un output (endógeno)
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5 Fixed Exchange Rates and the Trilemma
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
The Trilemma
Consider the following three equations and parallel
statements about desirable policy goals.
e
1. E DKr
A fixed exchange rate
/ €  E DKr / €
0
E DKr / €
■ May be desired as a means to promote
stability in trade and investment
■ Represented here by zero expected
depreciation
2.
e
International capital mobility
E DKr
/ €  E DKr / €
0
E DKr / €
■ May be desired as a means to promote
integration, efficiency, and risk sharing
■ Represented here by uncovered interest
parity, which results from arbitrage
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5 Fixed Exchange Rates and the Trilemma
The Trilemma
Consider the following three equations and parallel
statements about desirable policy goals.
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
3. iDKr / €  i€
Monetary policy autonomy
■ May be desired as a means to manage
the Home economy’s business cycle
■ Represented here by the ability to set
the Home interest rate independently of
the Foreign interest rate
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5 Fixed Exchange Rates and the Trilemma
The Trilemma
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
• Formulae 1, 2, and 3 show that it is a mathematical
impossibility as shown by the following statements:
■ 1 and 2 imply not 3 (1 and 2 imply interest equality,
contradicting 3).
■ 2 and 3 imply not 1 (2 and 3 imply an expected
change in E, contradicting 1).
■ 3 and 1 imply not 2 (3 and 1 imply a difference
between domestic and foreign returns, contradicting
2).
• This result, known as the trilemma, is one of the most
important ideas in international macroeconomics.
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5 Fixed Exchange Rates and the Trilemma
The Trilemma
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-16
The Trilemma Each corner of the triangle represents a viable policy
choice. The labels on the two adjacent edges of the triangle are the
goals that can be attained; the label on the opposite edge is the goal
that has to be sacrificed.
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APPLICATION
The Trilemma in Europe
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-17 (1 of 2)
The Trilemma in Europe The figure shows selected central banks’ base interest rates
for the period 1994 to 2010 with reference to the German mark and euro base rates.
In this period, the British made a policy choice to float against the German mark and
(after 1999) against the euro. This permitted monetary independence because
interest rates set by the Bank of England could diverge from those set in Frankfurt.
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APPLICATION
News and the Foreign Exchange Market in Wartime
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-17 (2 of 2)
The Trilemma in Europe (continued) No such independence in policy making was
afforded by the Danish decision to peg the krone first to the mark and then to the
euro. Since 1999 the Danish interest rate has moved in line with the ECB rate.
Similar forces operated pre-1999 for other countries pegging to the mark, such as
the Netherlands and Austria. Until they joined the Eurozone in 1999, their interest
rates, like that of Denmark, closely tracked the German rate.
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Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
Conclusiones
• En este capítulo se han entremezclado todas las teorías
vistas en el curso acera del tipo de cambio
• Se ha visto cómo interactúan en el corto plazo los
conceptos de arbitraje y equilibrio en el mercado de tipo
de cambio (FX), utilizando la paridad descubierta de tipos
de interés.
• También hemos utilizado la PPA y el enfoque monetario
para determinar el Tipo de cambio de largo plazo
• Mezclando el enfoque monetario (largo plazo) y de
activos (corto plazo) hemos establecido una teoría
completa de funcionamiento del tipo de cambio, tanto
para tipos flexibles como fijos.
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APPLICATION
FIGURE 15-10
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
Exchange Rates and News
in the U.S. Civil War
The value of the
Confederate dollar
fluctuated against the U.S.
dollar and is shown on a
logarithmic scale.
Against the backdrop of a
steady trend, victories and
advances by the North (N)
were generally associated
with faster depreciation of
the Confederate currency,
whereas major Southern
successes (S) usually led to
a stronger Confederate
currency.
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APPLICATION
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-19 (1 of 2)
Exchange Rates and News in the Iraq War
Regime change looked more likely from 2002 to 2003. When the U.S. invasion
ended, the difficult postwar transition began. Insurgencies and the failure to find
Saddam Hussein became a cause for concern.
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APPLICATION
Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
FIGURE 15-19 (2 of 2)
Exchange Rates and News in the Iraq War (continued)
The Swiss dinar, the currency used by the Kurds, initially appreciated against the
U.S. dollar and the Saddam dinar. With bad news for the Kurds, the Swiss dinar
then depreciated against the dollar until December 2003.
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