IMF Working Papers

Real Interest Rates, Real Exchange Rates, and Net Foreign Assets in the Adjustment Process

By Thomas Helbling, Bart Turtelboom

December 1, 1995

Preview Citation

Format: Chicago

Thomas Helbling, and Bart Turtelboom. Real Interest Rates, Real Exchange Rates, and Net Foreign Assets in the Adjustment Process, (USA: International Monetary Fund, 1995) accessed November 23, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper analyzes the recent behavior of real exchange rates, the trade balance and the net foreign asset position of the United States in an intertemporal optimizing model of the world economy that incorporates heterogeneity across countries and imperfect international capital and good markets. While the model successfully tracks the dynamics of trade balances and net foreign assets it generates too much consumption smoothing and excessively volatile relative prices. Resolving these inadequacies simultaneously is difficult as the elasticity of substitution between tradables and nontradables affects in opposite ways the degree of consumption smoothing and the volatility of relative prices.

Subject: Consumption, External position, Financial services, Foreign assets, Foreign currency exposure, Foreign exchange, Money, National accounts, Real exchange rates, Real interest rates

Keywords: Adjustment mechanism, Consumption, Consumption smoothing, Consumption-GDP correlation, Equilibrium price, Exchange rate, Exchange rate correlation, Foreign assets, Foreign currency exposure, Goods market, Nontradable goods, Output series, Real exchange rates, Real interest rate, Real interest rates, Standard deviation, Time series, Trade balance, Traded goods, United States trade balance, WP

Publication Details

  • Pages:

    38

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1995/129

  • Stock No:

    WPIEA1291995

  • ISBN:

    9781451934731

  • ISSN:

    1018-5941

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