NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Imperfect Asset Substitutability and Monetary Policy under Fixed Exchange Rates

Maurice Obstfeld

NBER Working Paper No. 485 (Also Reprint No. r0118)
Issued in June 1980
NBER Program(s):   ITI   IFM

This paper presents a long-run model of the open economy in a world of fixed exchange rates and imperfect substitutability between bonds denominated in different currencies. The model explicitly accounts for the wealth flow accompanying current-account imbalance and for the flow of interest payments associated with international lending. Both the dynamic and steady-state implications of the model are quite different from those of models that specify the capital account as a continuing flow responding to the level of interest rates. In particular, we find that when there exists outside government debt, open-market policy is not in general neutral in the long run. We also find conditions under which the central bank is able to hold the domestic price level constant in the face of an inflationary disturbance from abroad without exhausting, in the long run, its stock of domestic assets.

download in pdf format
   (825 K)

email paper

This paper is available as PDF (825 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w0485

Published: Obstfeld, Maurice. "Imperfect Asset Substitutability and Monetary Policy under Fixed Exchange Rates." Journal of International Economics, Vol. 10, No. 2, (May 1980), pp. 177-200. citation courtesy of

Users who downloaded this paper also downloaded these:
Obstfeld w0528 The Capitalization of Income Streams and the Effects of Open Market Policy under Fixed Exchange Rates
Roley w1082 Asset Substitutability and the Impact of Federal Deficits
Black The Use of Monetary Policy for Internal and External Balance in Ten Industrial Countries
West w10280 Monetary Policy and the Volatility of Real Exchange Rates in New Zealand
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us