Slide 16-1Copyright © 2003 Pearson Education, Inc. Introduction Output market Asset market : Foreign exchange market & money market DD schedule: Relates E&Y that keep the output market in equilibrium 說明 說明 E AA schedule: Relates E&Y that keep the asset market in equilibrium Y Intersection of DD and AA: Short-run equilibrium for an open economy Output market

Slide 16-2Copyright © 2003 Pearson Education, Inc.  模型目的。  內生變數：決定模型兩軸。  行為法則：畫出模型曲線。  均衡：決定均衡之內生變數。  外生衝擊 判斷是否為外生變數改變？ 判斷此外生變數之改變將影響哪些行為法則？ 判斷此外生變數之改變造成行為法則何種影響？ 學習經濟模型五步驟 模模型目的。 返回

Slide 16-3Copyright © 2003 Pearson Education, Inc.  模型目的。  內生變數：決定模型兩軸。  行為法則：畫出模型曲線。  均衡：決定均衡之內生變數。  外生衝擊 判斷是否為外生變數改變？ 判斷此外生變數之改變將影響哪些行為法則？ 判斷此外生變數之改變造成行為法則何種影響？ 學習經濟模型五步驟 內內生變數

Slide 16-4Copyright © 2003 Pearson Education, Inc. 內生變數 Output, Y Exchange Rate, E

Slide 16-5Copyright © 2003 Pearson Education, Inc.  模型目的。  內生變數：決定模型兩軸。  行為法則：畫出模型曲線。  均衡：決定均衡之內生變數。  外生衝擊 判斷是否為外生變數改變？ 判斷此外生變數之改變將影響哪些行為法則？ 判斷此外生變數之改變造成行為法則何種影響？ 學習經濟模型五步驟 行行為法則

Slide 16-6Copyright © 2003 Pearson Education, Inc.  Deriving the DD Schedule DD schedule –It shows all combinations of output and the exchange rate for which the output market is in short-run equilibrium (aggregate demand = aggregate output). Output Market Equilibrium in the Short Run: The DD Schedule

Slide 16-7Copyright © 2003 Pearson Education, Inc. Y2Y2 DD Output Market Equilibrium in the Short Run: The DD Schedule Figure 16-4: Deriving the DD Schedule Output, Y Aggregate demand, D D = Y Y1Y1 Aggregate demand (E 1 ) Y2Y2 Output, Y Exchange rate, E Y1Y1 1 E1E1 E2E2 2 Aggregate demand (E 2 )

Slide 16-8Copyright © 2003 Pearson Education, Inc.  It slopes upward because a rise in the exchange rate causes output to rise.  Factors that Shift the DD Schedule Government purchases Taxes Investment Domestic price levels Foreign price levels Consumption function Demand shift between foreign and domestic goods Output Market Equilibrium in the Short Run: The DD Schedule  This equation shows that aggregate demand for home output can be written as: D = D(EP*/P, Y – T, I, G) (+) (+) (+)(+)

Slide 16-9Copyright © 2003 Pearson Education, Inc. Y2Y2 Output Market Equilibrium in the Short Run: The DD Schedule Figure 16-5: Government Demand and the Position of the DD Schedule D = Y Y1 Y1 D(E 0 P*/P, Y – T, I, G 2 ) D(E 0 P*/P, Y – T, I, G 1 ) Y2 Y2 Output, Y Exchange rate, E Y1Y1 Aggregate demand curves 2 Government spending rises Output, Y Aggregate demand, D DD 1 E0E0 1 DD 2

Slide 16-10Copyright © 2003 Pearson Education, Inc.  A disturbance that raises (lowers) aggregate demand for domestic output shifts the DD schedule to the right (left). Output Market Equilibrium in the Short Run: The DD Schedule

Slide 16-11Copyright © 2003 Pearson Education, Inc.  A disturbance that raises (lowers) aggregate demand for domestic output shifts the DD schedule to the right (left). Output Market Equilibrium in the Short Run: The DD Schedule

Slide 16-12Copyright © 2003 Pearson Education, Inc. Introduction Output market Asset market : Foreign exchange market & money market DD schedule: Relates E&Y that keep the output market in equilibrium E AA schedule: Relates E&Y that keep the asset market in equilibrium Y Intersection of DD and AA: Short-run equilibrium for an open economy DD schedule: Relates E&Y that keep the output market in equilibrium Asset market : Foreign exchange market & money market AA schedule: Relates E&Y that keep the asset market in equilibrium

Slide 16-13Copyright © 2003 Pearson Education, Inc.  AA Schedule It shows all combinations of exchange rate and output that are consistent with equilibrium in the domestic money market and the foreign exchange market. Asset Market Equilibrium in the Short Run: The AA Schedule

Slide 16-14Copyright © 2003 Pearson Education, Inc.  Output, the Exchange Rate, and Asset Market Equilibrium We will combine the interest parity condition with the money market to derive the asset market equilibrium in the short-run. The interest parity condition describing foreign exchange market equilibrium is: R = R* + (E e – E)/E where: E e is the expected future exchange rate R is the interest rate on domestic currency deposits R * is the interest rate on foreign currency deposits Asset Market Equilibrium in the Short Run: The AA Schedule

Slide 16-15Copyright © 2003 Pearson Education, Inc. The R satisfying the interest parity condition must also equate the real domestic money supply to aggregate real money demand: M s /P = L(R, Y) Aggregate real money demand L(R, Y) rises when the interest rate falls because a fall in R makes interest- bearing nonmoney assets less attractive to hold. Asset Market Equilibrium in the Short Run: The AA Schedule

Slide 16-16Copyright © 2003 Pearson Education, Inc. L(R, Y 2 ) Output rises Asset Market Equilibrium in the Short Run: The AA Schedule Figure 16-6: Output and the Exchange Rate in Asset Market Equilibrium E 2 2'2' R2R2 2 Domestic-currency return on foreign- currency deposits 1 Foreign exchange market Money market E 1 1'1' R1R1 Real money supply M S P L(R, Y 1 ) Real domestic money holdings Domestic interest rate, R Exchange Rate, E 0 Return on domestic-currency dollar deposits

Slide 16-17Copyright © 2003 Pearson Education, Inc.  For asset markets to remain in equilibrium: A rise in domestic output must be accompanied by an appreciation of the domestic currency. A fall in domestic output must be accompanied by a depreciation of the domestic currency. Asset Market Equilibrium in the Short Run: The AA Schedule

Slide 16-18Copyright © 2003 Pearson Education, Inc.  Deriving the AA Schedule It relates exchange rates and output levels that keep the money and foreign exchange markets in equilibrium. It slopes downward because a rise in output causes a rise in the home interest rate and a domestic currency appreciation. Asset Market Equilibrium in the Short Run: The AA Schedule

Slide 16-19Copyright © 2003 Pearson Education, Inc. Figure 16-7: The AA Schedule Output, Y Exchange Rate, E Asset Market Equilibrium in the Short Run: The AA Schedule AA Y1Y1 E1E1 1 Y2Y2 E2E2 2

Slide 16-20Copyright © 2003 Pearson Education, Inc.  Factors that Shift the AA Schedule 說明 說明 Domestic money supply Domestic price level Expected future exchange rate Foreign interest rate Shifts in the aggregate real money demand schedule Asset Market Equilibrium in the Short Run: The AA Schedule

Slide 16-21Copyright © 2003 Pearson Education, Inc. Asset Market Equilibrium in the Short Run: The AA Schedule Figure 16-6: Output and the Exchange Rate in Asset Market Equilibrium 返回 Domestic-currency return on foreign- currency deposits Foreign exchange market Money market E 1 1'1' R1R1 Real money supply M S P 1 L(R, Y 1 ) Real domestic money holdings Domestic interest rate, R Exchange Rate, E 0 Return on domestic-currency dollar deposits

Slide 16-22Copyright © 2003 Pearson Education, Inc. Increase in U.S. real money supply Expected return on euro deposits A Temporary Increase In The Money Supply Figure 14-8: Effect on the Dollar/Euro Exchange Rate and Dollar Interest Rate of an Increase in the U.S. Money Supply 返回 返回 E 2 $/€ 2'2' U.S. real money holdings Rates of return (in dollar terms) Dollar/euro exchange Rate, E $/€ 0 Return on dollar deposits L(R $, Y US ) E 1 $/€ 1'1' R1$R1$ 1 M 1 US P US R2$R2$ 2 M 2 US P US

Slide 16-23Copyright © 2003 Pearson Education, Inc. Output, Y Exchange Rate, E AA 2 AA 1 1 E1E1 Y1Y1 A Temporary Increase In The Money Supply 2 E3E3

Slide 16-24Copyright © 2003 Pearson Education, Inc. Introduction Output market Asset market : Foreign exchange market & money market DD schedule: Relates E&Y that keep the output market in equilibrium E AA schedule: Relates E&Y that keep the asset market in equilibrium Y Intersection of DD and AA: Short-run equilibrium for an open economy AA schedule: Relates E&Y that keep the asset market in equilibrium Intersection of DD and AA: Short-run equilibrium for an open economy 說明

Slide 16-25Copyright © 2003 Pearson Education, Inc. Short-Run Equilibrium for an Open Economy: Putting the DD and AA Schedules Together  A short-run equilibrium for the economy as a whole must bring equilibrium simultaneously in the output and asset markets. That is, it must lie on both DD and AA schedules.

Slide 16-26Copyright © 2003 Pearson Education, Inc. Figure 16-8: Short-Run Equilibrium: The Intersection of DD and AA Output, Y Exchange Rate, E AA Y1Y1 E1E1 1 Short-Run Equilibrium for an Open Economy: Putting the DD and AA Schedules Together DD