西南財(cái)大課件國(guó)際金融3-4policy objectives and instruments

1、2022/10/3Chinese Finance Research Institute1ContentsPolicy Instruments Policy ObjectivesAssignments2022/10/3Chinese Finance Research Institute2Policy InstrumentsI. Policy Instruments in an Open EconomyI.1 Aggregate Demand InstrumentsExpenditure changing policy, mainly including fiscal and monetary p

2、oliciesExpenditure-switching policy, mainly including the exchange rate policy and regulationsI.2 Aggregate Supply Instruments Also labeled as structural policy, including industrial policy and technical policy, etc.I.3 Instruments for Financing2022/10/3Chinese Finance Research Institute3II. Princip

3、les of Policy AdjustmentsII.1 The Tinbergen LawAssumptions Linear economic structure, Decision making authorities have an absolute control over all policy instrumentsA simple illustration Suppose there are two policy objectives, T1, and T2, and two instruments, namely I1, and I2. The desired objecti

4、ves are T1*, and T2*, respectively. Suppose also that objectives are linearly dependent on the instruments, hence,Policy Instruments2022/10/3Chinese Finance Research Institute4T1=a1I1+a2I2T2=b1I1+b2I2 If and only if a1b2a2b1, namely the two instruments are irrelevant, can we solve out the I1 and I2

5、when the government realized its objective.I1=(b2T1*-a2T2*)/(a1b2-b1a2)I2=(a1T2*-b1T1*)/(a1b2-b1a2) Conclusions: The decision-maker need at least n separate policy instruments to realize n independent policy objectives in a linear economic system. Policy Instruments2022/10/3Chinese Finance Research

6、Institute5Policy InstrumentsII.2 Principles of Effective Market Classification Policy Instruments (i.e., variables) should be directed at those targets (i.e., markets) on which they have the most direct influence (Mundell, 1960).II.3 Policy Assignment Fiscal policy should be assigned to and aimed at

7、 internal objectives while monetary policy should be assigned to and aimed at external objectives.2022/10/3Chinese Finance Research Institute6Policy ObjectivesI. Internal & External BalanceI.1 Internal BalanceFull EmploymentPrice-StabilizationI.2 External Balance: A New Objective The Optimal Level o

8、f the Current AccountI.3 Macroeconomic Policy under the Gold StandardThe external balance2022/10/3Chinese Finance Research Institute7 The price-specie-flow mechanism The rule of the game: myth and realityThe internal balance. See Table 3-4-1.II. Policy Objectives under the Bretton Woods SystemII.1 T

9、he Changing Meaning of External BalanceDollar Shortage & the Marshall PlanCurrent Account gained more importance Private capital mobility Balance of payments crisisPolicy Objectives2022/10/3Chinese Finance Research Institute8Table 3-4-1 Inflation: Mean & Standard DeviationSource: Bordo (1999). Note:

10、 “All” refers to the countries or areas including the U.S., the U.K., Germany, France, Australia, Canada, Argentina, Brazil, Chile, Portugal, Denmark, Spanish, Finland, Norway, Sweden, Belgium, Netherlands, Greece and Japan.2022/10/3Chinese Finance Research Institute9Policy ObjectivesII.2 Policy Opt

11、ions Here, for simplicity, we assume the central bank in any country is able to defend its announced parity. Hence, i=i*.Maintaining internal balanceYf=C(Yf-T)+I+G+CA(SP*/P, Yf -T)Maintaining external balanceCA(SP*/P, Y-T)=XEconomic fort See Figure 3-4-1.2022/10/3Chinese Finance Research Institute10

12、Figure 3-4-1 Economic fortXX(CA=X)II(Y=Yf)Zone 1Over-employment; excessive CA surplusZone 4 Under-employment; excessive CA surplusZone 2Over-employment; excessive CA deficitZone 3Under-employment; excessive CA deficitFiscal ease1S2022/10/3Chinese Finance Research Institute11Expenditure-Changing & Ex

13、penditure-switching Policy Both expenditure changing and expenditure switching polices are needed to reach internal and external balance. However, under the Bretton Woods System, expenditure switching policy should not be used frequently. This leaves fiscal policy as the main tool for moving the eco

14、nomy toward internal and external balance. According the Tinbergen Law we have just learned, one policy instrument, fiscal policy in this case, is generally insufficient to attain the two goals of internal and external balance. Decision-makers will find they will be in a dilemma (see Figure 3-4-2).P

15、olicy Objectives2022/10/3Chinese Finance Research Institute12Figure 3-4-2 Policy DilemmaXX(CA=X)II(Y=Yf)G; T1243SDepreciation that results in internal & external balanceFiscal expansion that results in internal & external balance2022/10/3Chinese Finance Research Institute13Policy ObjectivesIII. The

16、External Balance Problem of the U.S.III.1 Reserve Currency Standard: The Case of Dollar The Mechanics of A Reserve Currency StandardThe Inherent AsymmetryIII.2 Triffin Dilemma: Confidence ProblemThe Dilemma and the SDRsThe Bankrupt of the Bretton Woods2022/10/3Chinese Finance Research Institute14AssignmentsRead chapt