MGEC61 货币供应量算法

本章建立在第2章中制定的汇率资产法的基础上，以确定短期和长期汇率：讨论货币市场利率是如何确定的。考察货币市场冲击对均衡利率的影响。回顾短期和长期之间的差异。研究货币市场冲击对汇率的短期和长期影响，以及解释汇率超调的概念。货币定义：简评货币供应量如何确定货币供应：流通货币+活期存款。假设：中央银行决定/控制国家的货币供应量。
MGEC61 – Chapter 3 Iris Au 1Chapter 3: Money, Interest Rate, and Exchange Rate

1. Learning Goals

This chapter builds on the asset approach of the exchange rate developed in Chapter 2 to determineexchange rate in both short run and long run: Discuss how interest rates are determined in the money market. Examine the effect of money market shocks on the equilibrium interest rate. Review the difference between the short run and the long run. Examine the short run and long run effects of money market shock on the exchange rate, andexplain the concept of exchange rate overshooting.Money Defined: A Brief ReviewHow the Money Supply Is Determined Money supply: Currency in circulation + Demand deposit. Assumption: The central bank determines/controls the country’s money
MGEC61 – Chapter 3 Iris Au 2Aggregate Money Demand Aggregate money demand: the total demand for money by all households and firms in theeconomy.where L(R, Y) = liquidity functionR = nominal interest rateY = real income = real GDPRMGEC61 – Chapter 3 Iris Au 3The Equilibrium Interest Rate: The Interaction of Money Supply and DemandEquilibrium in the Money Market Money market equilibrium is given by: Given the price level (P) and real output (Y), the nominal interest rate (R) adjusts to ensure themoney market is in equilibrium
Note: Money market is always in equilibrium. Therefore, when there is excess supply of moneyin the market, the interest rate falls for a given level of output and price, and vice versa.MGEC61 – Chapter 3 Iris Au 4Interest Rate and the Money Supply Suppose money supply increases from MS0 to MS1: For a given price level, P, and real income, Y, an expansion (reduction) in money supply lowers(raises) the interest rate.Output and the Interest Rate Suppose real income increases from Y0 to Y1: Holding other things constant, an increase (decrease) in real income raises (reduces) theinterest rate.
MGEC61 – Chapter 3 Iris Au 5The Money Supply and the Exchange Rate in both the Short Run and the Long Run (TheAsset Approach to the Exchange Rate)Short Run – Money, the Price Level, and the Exchange Rate Short run: price is given or price is sticky. Interest rates adjust to ensure the money markets are in equilibrium in both countries in theshort run.Changes in domestic and/or foreign interest rates will trigger financial capital flows, whichcause the exchange rate to change.Money, the Price Level, and the Exchange Rate in the Long Run Long run: a situation in which all markets are clear and all variables are flexible.Long Run – Money, the Price Level, and the Exchange Rate Long run: a situation in which all markets are clear and all variables are flexible.Money and Price Level in the Long Run In the long run, the price level is determined in the money market: An increase in the level of MS leads to a corresponding proportional increase in price level.MGEC61 – Chapter 3 Iris Au 6 Changes in the level of MS have no effect on Y and R in the long run:1) Output:

2.Interest rate:

MGEC61 – Chapter 3 Iris Au 7Additional - Level Change vs. Growth Rate
MGEC61 – Chapter 3 Iris Au 8Temporary Changes in the Level of Money Supply and the Exchange Rate A temporary/transitory change is achange that will be reversed back to its initial levelbefore the long run arrives ? No change in Ee.Temporary increase in domestic level of MS from MS0 to MS1:MGEC61 – Chapter 3 Iris Au 9Permanent Changes in the Level of Money Supply and the Exchange Rate A permanent/once-and-for-all change is a change that has a long-lasting impact on theeconomy (i.e., the change WILL NOT be reversed back to its initial level) change in Eein short run. Suppose the domestic level of MS increases permanently from MS0 to MS1:MGEC61 – Chapter 3 Iris Au 10Permanent Changes in the Level of Money Supply and the Exchange Rate (Continued)MGEC61 – Chapter 3 Iris Au 11Exchange RateOvershootingConsider the case of a permanent increase in the level of MS: Changes in E in the short run: Changes in E in the long run: Observation: By comparing the short-run equilibrium exchange rate with the long-runequilibrium exchange rate; it is obvious that exchange rate changes by a larger magnitude inthe short run than in the long run. We call this phenomenon exchange rateovershooting(undershooting) – the immediate depreciation (appreciation) of a currency to a shock is greaterthan its long run response. Exchange rate overshooting (undershooting) occurs because interest rate parity has to hold andprices are sticky in the short run, so exchange rate has to bear the burden of adjustment to amoney market disturbance.
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