Agriculture Reference
In-Depth Information
Table A10.4 Short-run closure
a
Region
Monetary policy target
b
Labour market
Captal controls:
closure:
capital account
nominal wage
c
net inflow I-S
D
d
China (1)
Nominal exchange rate, E
Sticky (λ=0.5)
Rigid
China (2)
Nominal exchange rate, E
Sticky (λ=0.5)
Flexible
China (3)
GDP price, P
Y
Sticky (λ=0.5)
Flexible
Vietnam
Nominal exchange rate, E
Sticky (λ=0.5)
Rigid
Other ASEAN
Consumer price level, P
C
Flexible (λ=1)
Flexible
Japan
Consumer price level, P
C
Sticky (λ=0.5)
Flexible
Korea
Consumer price level, P
C
Flexible (λ=1)
Flexible
Australia
Consumer price level, P
C
Sticky (λ=0.5)
Flexible
United States
Consumer price level, P
C
Sticky (λ=0.5)
Flexible
Europe (EU)
Consumer price level, P
C
Rigid (λ=0)
Flexible
Rest of World
Nominal exchange rate, E
Flexible (λ=1)
Flexible
Notes:
a
The expected future return on installed capital is exogenous in the short run,
determned n a separate long-run soluton. There are three macroeconomc polcy
regimes for China, with (1) the most restrictive and (3) the most expansionary.
b
The nominal money supply is endogenous in each case, the corresponding exogenous
varable beng the lsted target.
c
When the nominal wage is assumed flexible it is endogenous and the corresponding
exogenous variable is the employment level. When it is sticky or rigid, Equation 2 is
actvated and the employment level s endogenous.
d
Capital controls are assumed to maintain a rigid net inflow of foreign investment on
the capital account. When KA = I-SD is made exogenous to represent this, an interest
premum opens between the domestc and nternatonal captal markets. Ths premum
becomes endogenous. Effectively, the home and foreign capital markets are separated
and clear at different interest rates. Where the capital account is flexible (open), this
implies that private flows on the capital account are permitted at any level. KA = I-SD is
then endogenous and the home nterest premum s exogenous (unchanged by any shock).
Ths means that the home nterest rate then moves n proporton to the rate that clears
the global savngs-nvestment market.
