Dynamic Analysis Of Open Economies

Dynamic Analysis Of Open Economies

1st Edition - September 28, 1981

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  • Editor: Masanao Aoki
  • eBook ISBN: 9780323140805

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Dynamic Analysis of Open Economies focuses on the dynamic behavior of open economies in general, and dynamic interactions among several interconnected economies in particular. The emphasis is on the techniques of dynamic analysis and on the dynamic responses of models of open economies. This book is organized into three sections and consists of 15 chapters that examine how macroeconomic policy instruments affect open economies under flexible exchange rate regimes and the extent to which interdependence of national economies affects assessment of national policy effectiveness in a dynamic context. The behavior of open economies is analyzed not only at the instant of exogenous shocks or changes in instruments, but also after some time has elapsed since the last impacts. In considering the importance of dynamics, the book describes the behavior of a wide range of models and draws general conclusions. A set of techniques associated with variational analysis and perturbation theory is developed and systematically applied to models of open economies. This section also offers an analytical innovation for dealing with models of the world that are composed of several countries and demonstrates the usefulness of path controllability. The remaining chapters are devoted to models of small open economies and two- and multiple-country models of the world, paying particular attention to monetary policy and its distributional effects. Students and practitioners of applied mathematics and econometrics will find this book extremely helpful.

Table of Contents

  • Preface

    Scope of the Investigation


    List of Symbols

    Part One Analytical Concepts and Tools of Comparative Dynamic Analysis

    1 State-Space Representation of Dynamic Models

    1.1 Analytical Models

    1.2 State-Space Representation

    1.3 Notion of Equilibrium and Long-Run Policy Implications

    1.4 Example: A Balanced Growth Path of a Small Open Economy

    2 Variational Methods in Comparative Dynamic Analysis

    2.1 Introduction

    2.2 Reference Time Paths

    2.3 Variational Equations

    2.4 Sensitivity Analysis

    3 Variational Dynamic Equation: An Example of Fiscal Policy in a Macroeconomic Model

    3.1 Model

    3.2 Momentary Equilibrium

    3.3 Dynamics

    3.4 Long-Run Equilibrium

    3.5 Variational Relations: Shifting Momentary Equilibrium

    3.6 Variational Dynamics


    4 Dynamic Policy Multipliers (Impulse Response Functions)

    4.1 Dynamic Multipliers of Continuous Time Models

    4.2 Discrete-Time Policy Multiplier

    4.3 Multiplier in a Small Open Economy: An Example

    5 How to Evaluate Structural Differences: Application of Perturbation Theory

    5.1 Basic Procedure

    5.2 Structural Perturbation Method

    5.3 Choice of State Vectors in Models of Interdependent Economies

    5.4 Example: Effects of Trade on National Incomes

    6 Controllability and Theory of Economic Policy

    6.1 Controllability

    6.2 Path Controllability

    6.3 Policies with No Spill-Over Effects

    6.4 Stabilizability

    6.5 Example

    7 Linkages of National Economies

    7.1 Introduction

    7.2 Interest Rate Linkage

    7.3 Price Linkages

    7.4 Terms-of-Trade Linkage

    7.5 Expectations

    8 Sources of Dynamics and Their Interactions

    8.1 Variational Dynamic Equations

    8.2 Example

    8.3 Regressive Expectations and Consistency cum Stability

    8.4 Example

    Part Two Small Open Economies

    9 A Growing Economy: Influences of Capital Growth on the Dynamic Multiplier

    9.1 The Model

    9.2 Fiscal Multipliers

    9.3 Numerical Example

    9.4 Discussions and Summaries

    10 Stabilization Policies in a Small Open Economy

    10.1 The Model

    10.2 Long-Run Equilibrium

    10.3 Variational Differential Equations

    10.4 Short-Run Stability of the Variational Dynamics

    10.5 Policy Reaction Functions



    11 Short-Run Comparative Dynamic Analysis of a Small Open Economy with Variable Wage Rates

    11.1 The Model

    11.2 Long-Run Equilibrium

    11.3 Short-Run Analysis

    11.4 Are Variable Wage Rates More Inflationary? An Example of Structural Perturbation Analysis

    11.5 Numerical Examples

    11.6 Elaborations

    Appendix The Variational Disposable Income Expression

    Part Three Multiple-Country Models of the World

    12 Two-Country Model: A Preliminary Analysis

    12.1 Implications of Structural Differences

    12.2 Distributional Effects of Monetary Policies

    13 Monetary Policies in a Two-Country Model of the World

    13.1 Introduction

    13.2 Structural Perturbation Analysis

    13.3 Policy Sensitivity and Distributional Effects

    13.4 The Model

    13.5 Reduced Form Equations of the Reference Variational Model VMo

    13.6 Dynamics of the Reference Model

    13.7 Dynamics of VM

    13.8 Policy Effects

    13.9 Elaborations on the Basic Model

    13.10 Numerical Examples

    Appendix Calculation of the Averages and the Differences

    14 Two-Country Model of the World under Key Currency Regime

    14.1 Introduction

    14.2 The Model

    14.3 Variational Dynamics

    14.4 Stability Analysis under Rigid Wage Rates

    14.5 Stability: Flexible Wage Rates

    14.6 Elaborations on the Basic Model




    15 Interdependence in a Three-Country Model

    15.1 Introduction

    15.2 The Model

    15.3 Benchmark Model

    15.4 Nonsymmetrical Model: Distributional Effects of Instruments

    15.5 Nonsymmetrical Model: Monetary Union


    A Dynamic Multipliers of ARMA Model

    B Disposable Income Calculation

    C Regressive Expectations and Perfect Foresight Assumption

    D Short-Run Stability of Variational Equations

    E Calculation of the Transition Matrix

    F Perturbation Analysis of Matrix Exponential Functions



Product details

  • No. of pages: 368
  • Language: English
  • Copyright: © Academic Press 1981
  • Published: September 28, 1981
  • Imprint: Academic Press
  • eBook ISBN: 9780323140805

About the Editor

Masanao Aoki

Affiliations and Expertise

School of Engineering and Applied Science, University of California, Los Angeles, U.S.A.

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