Economic Disturbances and Equilibrium in an Integrated Global Economy

Investment Insights and Policy Analysis

Victor A. Canto

• Publisher: Academic Press
• Year: 2018
• Print ISBN: 9780128139936
• eBook ISBN: 9780128139943
• Topic: Economics
• Subtopic: International Economics
• Index: Economics

Economic Disturbances and Equilibrium in an Integrated Global Economy: Investment Insights and Policy Analysis helps readers develop a framework for analyzing economic events and make better, more consistent decisions. Victor Canto presents the theoretical building blocks that make up the overall framework, then expands the framework to tackle more complex problems, applying additional considerations to actual policy or investment issues. Drawing upon the most recent trends in monetary policy and international economics, the book offers sustained direct engagement with the main research question and makes innovative use of the simple concepts of supply and demand to illuminate modern finance literature.The book succeeds by highlighting the often-forgotten interconnectedness of different economic processes. How do we respond to a change in policy or an economic shock? Are all the expected changes to the general equilibrium consistent with each other?- Helps readers build an intellectual framework that enables them to interpret articles in the financial press and policy decisions in a logical and consistent manner- Differs from other books by eschewing partial equilibria analyses and instead providing a general equilibrium perspective useful for investors and policy makers- Provides supporting data on a freely-accessible website so readers can test and replicate results

Section IV

The Balance of Payments

• Chapter 23: Global Investing: The Balance of Payments
• Chapter 24: Monetary Views: Part I
• Chapter 25: Monetary Views: Part II
• Chapter 26: The Greenspan Monetary Rule
• Chapter 27: Transparency and Rule-Based Monetary Policy
• Chapter 28: A Single or Dual Mandate
• Chapter 29: The Demise of the Global Price Rule
• Chapter 30: The US Inflation Rate
• Chapter 31: The Exchange Rate and the Rest of the World Inflation

Chapter 23

Global Investing: The Balance of Payments

Abstract

In Part IV we move away from the goods markets into the money markets. We examine how the profit maximization and mobility affect global prices of goods in terms of money, and how the alternative organizations of the monetary system impact the world and individual countries underlying inflation rates as well as the net flow of money across national borders. These determine the nominal exchange rate and balance of payments of the different economies. However, before we get into the discussion, it may be worthwhile to review the basic monetary assumptions made in developing our framework. We focus on the national and global monetary equilibrium under alternative monetary arrangements.

Keywords

equilibrium

nonreserve currency country

real exchange rate

reserve currency country

terms of trade

Outline

1. The Monetary System
2. Extending the Framework to Account for Multiple Economies and Currencies
3. The Global and Individual Countries’ Monetary Equilibrium Under a Floating Exchange Rate
4. Variations on a Theme: Alternative Assumption Regarding the Money Demand Functions
5. Scenario 1: The Textbook Scenario Where Each Country Exclusively Uses Its Own Currency in All Domestic Transactions
6. Scenario 2: Each Country Uses Both Currencies in Domestic Transactions
7. Scenario 3: One Country’s Currency Circulates Both at Home and Abroad, but the Second Country’s Currency Only Circulates at Home
8. Extending the Framework: Accounting for Alternative Operating Procedures by the Monetary Authorities
9. Scenario 1: Each Country’s Central bank Is Committed to not Allowing Its Currency to Appreciate and Thereby Lose What They Perceive to Be a Comparative Advantage Due to an Exchange Rate Appreciation
10. Scenario 2: Each Country Central Bank Is Committed to Not Allowing the Other Country’s Currency to Depreciate and Thereby Prevent the Other Country From Gaining What They Perceive to Be a Comparative Advantage Due to an Exchange Rate Depreciation
11. Scenario 3: One of the Country’s Central Bank Decides to Fix Its Exchange Rate to the Currency of Another Country
12. The Mechanics of Operation of a Strict Fixed Exchange Rate Mechanism and Its Impact on the Domestic Monetary Base
13. The Nonreserve Currency Country Equilibrium Relationships
14. Reining in the Reserve Currency Country
15. That Relative Price Thing
16. What if the Central Bank Chooses to Hold a 100% Inventory of the Commodity Used as Reserve? How Safe Is It Against a Speculative Attack?
17. References

In Part I, we ...

Table of contents

• Cover
• Title page
• Table of Contents
• Copyright
• Preface
• Introduction: Asset Allocation: Indexing, Smart Beta, and ValueTiming
• Section I: Arbitrage and Mobility
• Section II: The Trade Balance
• Section III: Exchange Rate and the Terms of Trade
• Section IV: The Balance of Payments
• Section V: The Financial Crisis—A Case Study
• Section VI: China—A Case Study
• Index