TY  - JOUR
AU  - Clarida,Richard H.
TI  - The Balance of Payments Adjustment Mechanism in a Rational Expectations Equilibrium
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1945
PY  - 1986
Y2  - June 1986
UR  - http://www.nber.org/papers/w1945
L1  - http://www.nber.org/papers/w1945.pdf
N1  - Author contact info:
Richard H. Clarida
Columbia University
420 West 118th Street
Room 1111, IAB
New York, NY  10027
Tel: 212/854-3676
Fax: 212/854-8059
E-Mail: rhc2@columbia.edu
AB  - This paper provides a choice theoretic, general equilibrium
account of the balance of payments adjustment process and the determination
of national price levels in a world comprised of countries populated by
rational households. Balance of payments adjustment dynaniics arise in the
equilibrium of this model from the precautionary saving behavior of risk-
averse households who self-insure against random productivity fluctuations
by accumulating, via balance of payments surpluses in productive
periods, buffer stocks of domestic money which can be drawn down to finance
payments deficits, and thus a less variable profile of consumption relative to output, when productivity is unexpectedly low. Precautionary saving is shown to exhibit the
partial-adjustment-to-target behavior typically postulated in the monetary approach literature. The existence of a rational expectations equilibrium in which the distribution of international reserves among central banks is stationary is established.
ER  -