Exchange-Rate Volatility, Balance-of-Payments Instability and Stabilizing-Destabilizing Capital Flows

By

Masahiro Kawai

C o n t e n t s : I. Introduction. -- II. The Model. -- III. Exchange Rate and Balance of Payments under Alternative Regimes. -- IV. Stabilizing or Destabilizing Capital Flows. -- V. Conclusion.

I. Introduction

S ince the final collapse of official parities and the advent of a flexible

exchange-rate regime among the major industrial countries in the spring of 1973 , the problem of exchange-rate volatil i ty has at-

t racted considerable attention. One of the main reasons for this is the resulting instability in the trade account, which eventually disrupts the production of tradables, leading to undesirable fluctuations in income and employment. Another concern, stemming from the high degree of ex- change-rate fluctuations, is capital-account instability which weakens the international allocation of financial resources. I t might be argued tha t a return to a fixed exchange-rate regime eliminates most of the unwanted effects of freely fluctuating exchange rates. However, it can be shown that the fixed system does not necessarily stabilize the trade or capital account, and that exchange-rate volatility may be reduced by encouraging capital movements under a regime of flexible rates.

The major objective of the paper is to provide a rational expectations model that is capable of explaining the impact of a switch from the fixed to the flexible exchange-rate regime upon the degree of instability of the trade and the capital account. Then the effects of liberalizing (or stimulat- ing) capital flows on exchange-rate volatility and balance-of-payments in- stability are analyzed under alternative exchange-rate arrangements. As a measure of "instabili ty" or "volat i l i ty" only the one-period (or short- term) variance is considered. While it is also important to investigate the n-period instability (n > 1), this long-run comparison generally turns out to be quite ambiguous.

Remark: I a m t h a n k f u l to K e y - Y o u n g C h u of t he I n t e r n a t i o n a l M o n e t a r y F u n d a n d an a n o n y m o u s referee for t h e i r c o m m e n t s o n a n ea r l i e r ve r s i on of the p a p e r . E r r o r s a n d de- ficiencies that m a y r e m a i n in the paper are, needlem to s a y , m y own.

Exchange-Rate Volatility 43I

II. The Model

The model used in this paper is similar to those of Driskill and McCaf- fer ty [I98oa; x98ob], except tha t it explicitly considers the feedback effect of changes in foreign-exchange reserves on the demand for foreign assets and, hence, on the capital account. The model has a short-run specification in the sense that income and prices are fixed1; and it consists of the trade account, capital account, the money-market equilibrium condition, and the equation for accumulation of foreign-exchange reserves.

The trade account can be considered as an increasing function of the current exchange rate and the rate expected one period previously:

(I) T t ~- - - ~t0 -~- ctl s t -J- ~-2 E t - 1 s t -~- u t ; ~o, ~1 + ~-2 > 0

where T t is exports less imports evaluated in foreign currency; s t is the natural logarithm of the exchange rate St (the domestic currency price of foreign exchange), i.e., s t = l n S t ; E t _ 1 S t is the expected value of st, conditional on information available at time t - - 1 ;2 and ut is an exogenous random variable affecting trade flows, which will be referred to as the "real shock" in what follows.

The capital account reflects international investors' desires to adjust their stock of foreign securities. The stock demand for foreign assets, Kt, is assumed to be a linear, increasing function of the anticipated relative yield on holding a unit foreign security:

(2) Kt = }0-~- } (Et st +l - - st + i ~ - - i d) + }vxt; 0 < ~ < o o

where E t st+ 1 - - s t is the expected capital gain (or loss) of holding foreign assets; i~ and it d are the foreign and domestic interest rates, respectively; and vlt is a disturbance term influencing the stock demand for foreign securities. The coefficient ~ measures the response of foreign asset demand to the relative yield 8, and the assumption 0 ~< ~ < oo suggests tha t

i Flood [1979] endogenizes income and computes its variances under fixed and flexible exchange-rate sys tems; however, he assumes purchasing-power pari ty for prices and interest- rate pari ty for the domestic interest rate.

The reason why the term involving E t _ 1 st is placed in the trade-account equation is because of the possibility of technological lags (production, t ransportat ion and ent ry lags) between the time of order placement and actual delivery [see Magee, 1974], rather than be- cause of speculative leads and lags. The expected future exchange rate E t st + 1 is not regarded as an important determinant of the trade-account position; the t iming of receipts and pay- ments may indeed be affected by expected exchange rates, bu t this problem of leads and lags is properly considered as a "portfolio problem" (capital flows).

s In an expected-utility maximizing framework, [~ would depend upon the exchange- rate variance and the risk-aversion coefficient (see Driskill and McCafferty [x98ob] for

4 3 2 M a s a h i r o K a w a i

domestic and foreign securities are not perfect substitutes. Note that the disturbance associated with capital transactions grows as the measure of capital mobility, 13, rises. The capital account is represented by a change in Kt , that i s , - (K t - - K t _ 1 ) measures a capital inflow and, hence, a surplus in the capital account.

Wt:ite the foreign interest rate is assumed to be an exogenously given random variable (i~ = ~f + v2t ), the domestic interest rate is determined in the money market:

t (3) M t + Y. S t ( t ~ - - R ~ ) = v 0 - - v i ~ + v , t ; v > 0

(4)

where

where the left-hand side of (3) is the stock of existing money supply in the domestic economy (in terms of domestic currency), consisting of a

t domestic component M t plus a foreign component x S T (1~ - - R ,_0 .

Here 1~ is the stock of foreign-exchange reserves held at time �9 by the domestic monetary authority. The right-hand side of the equation is the stock demand for money wherein v|t is an exogenous disturbance in the demand for money balance. Note that wealth terms are assumed to be absent from both the demand for domestic money and foreign securities, putting alI the wealth effects into domestic-securities demand 1.

If the domestic component of money supply follows the stochastic process M t = ~ + v,t where i~I is constant and v,t is a random element reflecting exogenous shifts in money supply, then equation (3) endogenously determines the domestic interest rate in terms of changes in the current and past reserves and disturbances. By substituting this domestic interest rate into equation (2), the demand for foreign securities can be rewritten as

t Kt = 131 + 13 (E t st+l - - st + vt) + y - 1 ~ Z S, ( I ~ - - R~_I)

--OO

Vt ~ . Vlt _I_ V2 t - - ~--1 V | t _~_ T--1 Vlt

Despite the absence of a wealth effect in (z), note that the level of foreign- exchange reserves (in domestic currency value) exhibits a positive impact

example). However, throughout the paper 13 remains constarlt; the underlying assumpt ion is that investors are risk-neutral and there exist holding costs associated with foreign port- folios.

I Domestic residents are assumed to hold domestic money as well as domestic and foreign securities only. The domestic-security demand is not explicitly considered.

Exchange-Rate Volatility 433

on the demand for foreign securities via its effects on money supply and, hence, the interest rate. The term v t is a composite of the disturbances affecting the foreign interest rate, the stock demand for foreign securities and domestic money balances, and the stock money supply; so it can be interpreted as the "financial shock".

The private sector's supply of foreign exchange arises from net exports of goods and services and net imports of financial capital, so that the market-clearing condition for foreign exchange is simply

(5) R t - - R t - 1 ~- T t + ( - - K t -~- K t - 1 )

which asserts that a balance-of-payments surplus (or deficit) manifests itself as an accumulation (or decumulation) of foreign-exchange reserves held by the domestic government. Interest payments or receipts are neglected on the basis of the assumption that they come into effect with a one-period lag and, hence, do not significantly affect the one-period variances, which are our main concerns. If a purely flexible exchange rate should prevail (a clean float), the monetary authori ty need not intervene in the foreign exchange market:

(6) (R t - - Rt_l) ~x = 0 for any t

where the superscript "flex" indicates a purely flexible system. On the other hand, under a purely fixed exchange-rate regime rates are pegged at a given value

(7) st ~x --= ~ for any t

and the government has to absorb any balance-of-payments disequilibria by adjusting its reserves ("fix" refers to a purely fixed system)1.

HI. Exchange Rate and Balance of Payments under Alternative Regimes

I. E x c h a n g e - R a t e D e t e r m i n a t i o n U n d e r t h e F l e x i b l e E x c h a n g e - R a t e R e g i m e

Suppose the government commits itself to maintaining a purely flexible exchange-rate regime and does not intervene in tile foreign exchange

* The present model, which is nonlinear in S t and Rt, cannot handle the case o~ "managed" floating exchange rates where both St and R t - - Rt--1 are endogenous. While the dichotomy of purely flexible and fixed regimes is convenient analytically, in reality there exists a con- tinuous spectrum of systems with virtual fixity at one extreme and freely flexible rates at the other. Williamson [x976] discusses the case of a "dirty float" but does not fully solve his model.

434 M a s a h i r o K a w a i

market on the premise that at each moment in time exchange rates freely fluctuate to eliminate any excess demand for foreign exchange. Then using (I), (4) and (6), the market-clearing condition for foreign exchange (5) is expressed (for ~ > 0) as

-~- ~ ) E t - - l S t + s t - - 1

cr 0 1 = - - y + ~- u t - - v t + v t - t

In order to solve this stochastic difference equation, it is assumed that expectations are formed rationally ~ la Muth [I96I ]. Thus, Etz t+ . is the mathematical expectation of zt+ , , which is any variable observed at time t + . , conditional on the time t information set. (The information set contains all the current and past values, the probability distribution of random disturbances, and the complete structure determining the exchange rate.) The ut and v t are assumed to be uncorrelated, serially

2 and 2 independent random variables with means 0 and variances au %, respectively 1.

Applying the mathematical conditional expectations operator E t _ 1 to both sides of (8), one can obtain

(9) Et__ 1 s t + 1 - 2 + _~!__ st + S t _ _ l = _ _ ~ - + E t _ l v t _ l

because E t _ 1 u t = E t _ x v t = 0. The terms in the square brackets on the left-hand side of equation (9) can be factored as

[ ( 1 1( 1) L -1 1 - - 2 + =3 L + L 2 st = 1 . . . . L (1- -XL) s t x

= - - x - 1 (1 - - x L - 1 ) (1 - - x L ) s t

where L is the lag operator and ), satisfies

0 < x = 1 + (=1 + =~)/2~ - - 1 / [ 1 + (=1 + =~)/2~] ~ - i < 1

Then dividing both sides of (9) by - - x -1 (1 - - XL-1), one can derive s

t The assumptions for v t imply the same conditions to hold for v l t , v2t, v3t and v4t.

t Only the terms inside the square brackets of equation (9) have to be divided by the term - - ) , - - I (1 - - ),L--l), and the expectations operator Et--1 is unaffected.

Exchange-Rate Volatility 435

Et--x (1 - - ).L) st = }--1 ~0 " co

X/(1 - - X) - - X Z XJ Et_x v t - l + j j--0

+ E t - - 1 w t

where w t represents the process E t _ 1 wt+ 1 ---- )---1 E t _ l wt ' which is ex- plosive unless E t _ 1 w t ---- 0. I f we are to eliminate Sargent ' s speculat ive "bubbles" (i.e., if we are to impose the boundedness condit ion on the E t _ 1 s t pa th so t h a t the pa th is unique) l, we should set E t _ 1 w t ---- 0 to obtain

( IO) E t _ l s t = ~ - - 1 % . ~ . / ( 1 - - X) "-~ )~St__ 1 - - ),Vt__ 1

because E t _ 1 V t _ l + j ----0 for j > 1. Subst i tu t ion of (IO) back into (8) yields the rat ional expectat ions equi l ibr ium solution for the exchange rate under the pure ly flexible exchange-ra te regime:

flex __ ~0 1 (II) s,

• u t - j - - [~ ( 1 - - X) v t + ~ x Z Xlv t_ j j--1

Interest ingly, the long-run value of the equil ibrium exchange rate, ~0](=1 + ~) = lira E t (st+,) ~ex, is de termined solely b y the t rade-account

if--C- OO

parameters . The var iance of the t ime t + 1 exchange rate, condit ional on information available at t ime t, can be easily computed as

(12) v , (s~+l) "X = [ ~ + ~2 (1 - - x) 2 .~1 / [~1 + ~ (1 - - x)] z

The equil ibrium t rade account and capital account , which are of opposite signs under the flexible regime, can be obta ined as

(13) Tfiex ---- - - ( - - K t + K t - 1 ) flax - - t

---- Y. XJ (u t - j + ~1 v t - l ) ~ , + ~ ( l ~ x ) u t + ~ l v t ~ ( 1 - - x ) j_ l

x The exclusion of "speculative bubbles" is t an t amoun t to assuming the uniqueness of rational expectations equilibrium in the sense of Taylor [I977], Our procedure of obta ining the rational expectations equilibrium solution is similar to the one used by Sargent [z979] a n d is analytically equivalent to the method of undetermined coefficients developed by Lucas [x973] and Barro [I976] and applied by Driskill and McCafferty [x98oa].

436 M a s a h i r o K a w a i

This indicates tha t the constant terms of the t rade account and capital flows are zero; tha t is, in the long run each account will be in equilibrium. The conditional variances of the t rade and capital accounts, one period ahead, are expressed as

(14) Vt ( T t + l ) flex = V t ( - - K t + l "~- K t ) flex

___ [~2 (1 - - ;,.)2 (a~ + a~ ,,~)]/[~,,. + ~ (1 - - x)] 2

2. B a l a n c e of P a y m e n t s U n d e r t h e F i x e d E x c h a n g e - R a t e R e g i m e

Suppose that the government is obliged to absolutely peg the exchange rate at ~ -=-- % / (al + %), which is the long-run rate tha t would prevail if the flexible system were adopted 1, and tha t the marke t part icipants believe the rate is to remain fixed at this value (Et_ 1 s t = s).

Then the trade account is s imply

(I5) Tt ~x = u t

The capital flows are obtained from (4) and (7) :

( - - K t + K t _ l ) fix = - - 0 ( R t - - R t _ l ) fix - - ~ v t + ~ v t _ 1

where 0 = •-1 $~ = y - i Se;. This demonstrates tha t an increase in foreign- exchange reserves induces capital outflows since it raises domestic money supply, lowers the domestic interest rate and makes foreign securities more attractive. Combining this equation with the foreign-exchange reserve accumulation equation (5) and the t rade account (I5), the capital account and the overall balance of payments are obtained:

(16) ( - - K t -3 t- K t _ x ) fiz = ( - - Ou t - - ~ v t + ~ V t _ l ) / (1 + 0)

(17) (R t - Rt_l) f= : (u t - - ~v t + ~vt_l) ] (1 + 0)

Equations (I5), (16) and (17) show tha t the long-run values of trade, capital flows, and reserve accumulation are also zero. Their one-period conditional variances are

(I8) Vt (T,+I) ~" = ~

i The exchange rate does not have to be pegged at ~/(at + ~s)- However, this rate ensures tha t in the long run reserves do not accumulate or decumulate to an infinitely high or low level.

Exchange-Rate Volatility

2 ~2 (19) Vt ( - - Kt+x + Kt) ~ ( 02 *u + ov 2) / (1 + 0) 2

(20) V t ( R t + t - - R t ) ~* = (-~ + [ ~ 2 . ~ ) / ( 1 + 0 ) *

437

3- I n s t a b i l i t y of the T r a d e an d t h e C a p i t a l A c c o u n t

The impact of a switch from the fixed to the flexible exchange-rate regime upon the measure of trade and capital account instability can be examined by forming the relation Vt (Tt+l)ttex/u (Tt+l) fix (A for short), and Vt ( - - Kt+l + Kt)flex/Vt ( - - Kt§ + Kt) ~ (B for short). I t is useful to investigate the impacts for some important special cases, since the comparison of variances is not necessarily straightforward.

Case i : gu 2 / ~2 v ---,t or (gR 2 ) ) ~ ) ; t h a t is, t h e r a n d o m d i s t u r b a n c e s are mainly due to fluctuations in trade flows (real shocks). Then, from (I4), (I8) and (I9),

A - * [ ~ ( 1 - - ) ` ) ] 2 [ 1 + 0 [~(1-- ) , ) ] 2 _ . < 0h + f~ (1__)`) < 1 ; B - + 0 , q + B ( 1 - - x ) >~ 1

This result reveals that the trade account is stabilized by a move from the fixed to the flexible system, while the capital account may or may not be stabilized. The flexible system reduces the capital-account variance with a high degree of capital mobility or a low interest semi-elasticity of the demand for money, i.e., 0 > ~i --1 ~ (1 - - ),).

2 2 2 Case 2: Ou/av ~ 1 (% ~--- ~2); namely, variabilities of real and financial shocks are approximately of the same magnitude. Then

~2 (,,2 + 1) (1- - ) , )2 > A--~- [=x + ~ ( 1 - - X ) ] 2 ~ 1;

(I + 0) 5 B - ~ - - ~2 + 0 '

[~2(.2+ 1) ( l - - X ) z > [% + ~ (1-- ) , ) ]2 ~ 1

This indicates that the trade and the capital account may or may not be stabilized as a result of adopting the flexible exchange-rate regime. The trade account is stabilized if ~ (1 - - x) < (1 + V ~ + 1) / ~1, which tends to be satisfied with a high degree of capital mobility. Capital-flow stability is obtained under either one of the following conditions: (1) 0 < [s < ~2/([~2 .q._ 1), (2) [~2/([~2 .3f- 1) < Iz < 1 and 0 - - t ~ / ( 1 - - ~ ) > ~/[(~2 + 1 ) ~ - - [~2] / (1--~) , (3) ~ = 1 and 0 < ([~2-- 1) /2 , and

4 3 8 M a s a h i r o K a w a i

(4) 1 < tt < ~2 and :; 0 + ~/(~ - - 1) I < 1/[(~2-_~ 1) t~ - - ~2) / (~__ 1), where = [8 2 (~12 + 1) (1 - - ~,)2]/[~ 1 + 13 (1 - - 7,)] 2 .

2 2 Case 3 ! a,/~,, --+ 0 (~ << ~2) ; that is, a financial shock is the major disturb- ance in the foreign-exchange market , In this case we obtain

(1 +0) ! 1 . A---~oo; n- -~ [ =l q_ B ( l _ _ X) J ~ 1

It is quite reasonable to observe that flexible exchange rates are always trade-destabilizing when fluctuations in exchange rates or foreign-exchange reserves are mainly caused by financial shocks, because trade flows are subject to both real and financial disturbances under the flexible system while they are affected only by real shocks under the fixed System. The capital account may or may not be stabilized by a shift from fixed to flexible rates; it is stabilized with a high interest sensitivity of money demand, 0 < [~1 7̀ + [~ (1 - - ),)]/~1 (1 - - 7`).

IV. Stabilizing or Destabilizing Capital Flows

Whenever there exists an anticipated gain in adjusting their optimum foreign-security holdings, international investors generate capital flows. Since this financial arbitrage operation is expected to improve an inter- temporal allocation of financial resources and foreign exchange, it is often asserted that stimulating international capital flows reduces the amplitude and frequency of exchange-rate fluctuations or stabilizes the balance of payments. Our model can be applied to inquire about the validity of this intuitively plausible assertion. Let us consider the case of the flexible and the fixed regime separately.

I. E x c h a n g e - R a t e V o l a t i l i t y a n d C a p i t a l F l o w s

The first exercise under flexible exchange rates is to examine the effect of an increase in the degree of capital mobility on exchange-rate volatility, given that capital flows take place initially. Differentiation of (12) with respect to the foreign-security demand coefficient [~ yields

d V t (st +1) ~ex 1 ). 2 2 - - o. - - ~ [~1 (2 - - x) + ~, x] ~v < d~ ------ 1 -b x " [al -b [~ ( 1 - - x)] 3 ~ 0

2 if ~.~/ov <>/ ~ ['1 (2 - - x) + , , x]

That is, an increase in the relative-yield responsiveness of the demand for foreign securities lowers the exchange-rate variance if the real shock

Exchange-Rate Volatility 439

is large relative to the financial shock, and vice versa (a similar result is obtained in Driskill and McCafferty [I98oa]). The policy implication is that a reduction of obstacles to foreign-security holdings stabilizes ex- change-rate volatility with respect to real disturbances but not with respect to financial disturbances 1.

The next exercise is to investigate the effect of a switch from zero to non-zero degrees of capital mobility upon exchange-rate volatility. Suppose for some reason there exist no capital flows (i.e., ~ = 0 perhaps because of government prohibition or natural impediments); then under the flexible exchange-rate system the equilibrium exchange rate has to be determined by the trade account only:

S; flex = 0t0/(0t 1 + 0ti) - - ~t~ -1 U t

w h e r e S: flex is the rational expectations equilibrium exchange rate without capital flows. Then comparing the variance of st ~ex with tha t of ~ex in the presence of capital flows, we can obtain - t

V, (s~+~) ~ " / V , (s:*+~) a~

= { ~ [Zu 2 + 6 2 (1 - - ),)2 a~]} ] {[,,~ + ~ (1 - - ),)]2 a~}

Hence, if the real shock is large relative to the financial shock - - i.e., 2 2 ~ ~ (1 X) [2 (1 , initiation of capital flows ttu/av > - - / ~x + ~ - - X)] - - the

stabilizes exchange rates; whereas, if the financial shock is the major disturbance in the foreign-exchange market - - i.e., 2 2 ~ < ~ ~ ( 1 - X)/ [2 xl + ~ (1 - - X)] - - , then, since the introduction of capital flows is equivalent to placing the additional disturbance, exchange rates are nat- uraUy destabilized 2.

2. B a l a n c e - o f - P a y m e n t s I n s t a b i l i t y a n d C a p i t a l F l o w s

Under the purely fixed exchange-rate regime, the effect of an in- creased incentive for capital flows upon the measure of instability of the balance of payments (and, hence, changes in foreign-exchange reserves)

1 The destabilizing influence by fiaancial shocks is obtained owing to our specification tha t the magni tude of international capital flows grows as a result of s t imulat ing (or liberaliz- ing) capital trails.actions. See equation (4).

t Notice tha t the trade account is always destabilized by the introduction of capital movements ; in the absence of capital flows, the flexible regime always brings the t rade accotmt into balance and, hence, zero variance.

44 ~ Masahiro Kawai

can be examined. Differentiate the balance-of-payments variance (io) with respect to 8:

2 ~2 dVt ( R t + , - Rt) ~* 2 (00, z, - - ~ 2 02) < % > . . . . . . d~ -- ~ (1 + 0) 3 ~ 0 if ~2- ~ ~ -

Hence, an increase in the sensitivity coefficient of foreign-security holding, 8, always stabilizes the overall balance of payments with respect to real shocks, but exacerbates the instability with respect to financial shocks.

Let us further compare balance-of-payments instabilities in the absence and presence of capital movements. In the absence of capital flows (i.e., ~ = 0), the overall balance of payments is merely the trade- account component cx~. R* ~x ~*-t - - t-x/ ---- ut, where R~ is the level of foreign- exchange reserves without capital movements . Then using (20),

Vt (Rt+I - - Rt)~'/Vt (R~+I - - Rt*) a* = (.2 + ~z .~)/[(1 + 0) 2 a~ 2]

Tlfis reveals tha t for a relatively large real shock - - i.e., ouz/o $ > ~2/0 (2 + 0) - - the introduction of capital flows tends to stabilize the balance of payments , and vice versaL

V. Conclusion

Tile paper has developed a model of the foreign exchange marke t to investigate the determinants of exchange-rate volati l i ty or balance-of- payments instability. The model is essentially nonlinear but yields linear reduced-form solutions in two special cases: constant foreign-exchange reserves (with freely flexible exchange rates) and constant foreign-ex- change rates (with var iably adjusting reserves).

Under the regime of purely flexible exchange rates, the rat ional expectations equilibrium exchange rate is determined so as to clear the foreign-exchange market ; while under the purely fixed exchange-rate regime, foreign-exchange reserves accumulate or decumulate, reflecting an overall balance-of-payments imbalance. When the rates are fixed, the feedback effect of reserve changes upon the domestic interest ra te (via a change in money supply) and, hence, upon capital flows is impor tan t . Whether the trade account is more or less stable under the a l ternat ive exchange-rate regimes depends crucially upon the origin of r andom disturbances; if the shock is mainly of a real nature, then t rade flows tend to be stabilized under flexible rates. But if a financial shock dominates

Irtciderttally, the trade-account variance is unaffected by instituting capital flows, i.e., V t (Tt+l) fix = V t (T~+I) tix = o~u.

Exchange-Rate Volatility 44I

a real shock, t hen t rade instabi l i t ies t end to result . W h e t h e r the cap i ta l account is s tabil ized b y a switch from the fixed to the flexible regime remains ambiguous ; it depends on not on ly the source of shocks b u t also the size of various parameters in the sys tem (part icular ly, the relat ive-yield semi-elasticit ies in the demand for foreign securit ies a nd money).

Liberal iz ing or s t imula t ing capi ta l movemen t s u n a m b i g u o u s l y s tabi l i - zes exchange rates (under the flexible system) or the overal l ba lance of p a y m e n t s (under the fixed system) if the real d i s tu rbance is the mos t p r edominan t r a n d o m factor in the foreign exchange marke t . However, when the d i s tu rbance consists m a i n l y of f inancial shocks, capi ta l flows t end to exacerbate exchange-ra te vola t i l i ty or ba lance -o f -payment s ins tab i l i ty .

References

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Lucas, Robert E., Jr., "Some International Evidence on Output-Inflation Tradeoffs". The American Economic Review, Vol. 63, x973, PP. 326--334 .

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Muth, John F., "Rational Expectations and the Theory oi Price Movements". Econo- metrica, Vol. 29, I961, pp. 315--335.

Sargent, Thomas J., Macroeconomic Theory. New York x979.

Taylor, John B., "Conditions for Unique Solutions in Stochastic Macroeconomic Models with Rational Expectations". Econometrica, Vol. 45, 1977, pp. 1377--I385.

WllHamson, John, "Exchange-Rate Flexibility and Reserve Use". The Scandinavian Journal o/Economics, Vol. 78, 1976, pp. 327--339.

s i ~t

Z u s a m m e n f a s s u n g : Wechselkursschwankungen, Instabilit~t der Zahlungs- bilanz und stabilisierendeldestabilisierende Kapitalstr6me. - - In diesem Aufsatz wird ein Model1 mit rationalen Erwartungen konstrniert, das erkl~ren soil, welche Aus- wirkungen ein ~3bergang yon festen zu flexiblcn Wechselkursen auf den Grad an Stabili~t der Handels- und Kapitalstr6me hat. Danach werden die Effekte unter- sucht, welche yon der Liberalisierung (oder Stimulicrung) yon Kapitalbewegungen

Weltwir r A.rchiv B d . C X V I I I . ~9

M a s a h i r o K a w a i Exchange-Rate Volatility

au f die W e c h s e l k u r s s c h w a n k u n g e n u n d d ie I n s t a b i l i t ~ t de r Z a h l u n g s b i l a n z i m R a h - m e n der be iden W e c h s e l k u r s s y s t e m e a u s g e h e n . Als Ma0 fQr ,,Tnstabilit~t" ode r , , S c h w a n k u n g e n " wird n u t die kurz f r i s t ige Var i anz e iner Per iode in B e t r a c h t gezogen. W e n n es a u c h wich t ig ist, d ie I n s t a b i l i t ~ t ftir n - P e r i o d e n zu u n t e r s u c h e n , so er- weis t s ich doch ein solcher l ang i r i s t ige r Vergle ich im a l l g e m e i n e n als n i c h t e indeu t ig .

R 6 s u m 6 : L a vola t i l i t6 du t a u x de change , l ' i n s t ab i l i t 6 de Ia b a l a n c e des p a i e m e n t s e t les ~ u x de c a p i t a u x s t ab i l i s an t s -d6s t ab i l i s an t s . - - Le b u t p r i nc ipa l de ce t ar t ic le es t de cons t ru i re u n modu le des e x p e c t a t i v e s r a t ionne l l e s p o u r e x p l i q u e r les effets d ' u n c h a n g e m e n t du r6g ime des changes fixes au r6g ime des c h a n g e s f lexibles su r le degr6 des ins tab i l i t6s des f lux c o m m e r c i a u x e t de c a p i t a u x . P u i s l ' a u t e u r a n a l y s e les effets d ' u n e l ib6ra l i sa t ion e t s t i m u l a t i o n des m o u v e m e n t s de c a p i t a u x su r la vola- t i l i t6 du t a u x de change e t la ba l ance des p a i c m e n t s sous lcs d e u x r6g imes diff6rents . P o u r mesu re r l ' ins tab i l i t6 ou la vola t i l i t6 on a s e u l e m e n t consid6r6 la v a r i a n c e d ' u n e - l~ r i ode (ou la va r i ance ~ cou r t te rme) . B ien qu ' i l soi t auss i i m p o r t a n t d ' a n a l y s e r l ' ins tab i l i t~ s u r n l~r iodes , ce t t e c o m p a r a i s o n g 6 n 6 r a l e m e n t se m o n t r e 6tre assez amb igue .

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R e s u m e n : Vola t i l idad del t ipo de cambio , i ne s t ab i l i dad de ]a b a l a n z a de p a g o s y f lujos de capi ta l es tab i l i zadores -deses tab i l i zadores . - - F.1 p r i nc ipa l ob ]e t ivo de es te ar t iculo es p roba r un mode lo de e x p e c t a t i v a s rac iona les capaz de exp l i c a r el i m p a c t o del c amb io de u n r~g imen de t ipo de c a m b i o fiio a f lexible sobre el g r ado de ines ta - b i l idad de las c u e n t a s comerc ia l y de capi ta l . ]En s e g u i d a se a n a l i z a n los e fec tos de l iberal izar (o es t imular ) los f lujos de cap i t a l sobre la vo l a t i l i dad del t ipo de c a m b i o y la ines t ab i l idad de la b a l a n z a de pagos ba jo d ispos ic iones de t ipo de c a m b i o a l te r - na t ivas . Como m e d i d a de ~ ines tab i l idad , o cvo la t i l idad , se cons ide ra solo la v a r i a n z a de u n per iodo (o de cor to plazo). Mien t r a s es i m p o r t a n t e i nves t i ga r la i n e s t a b i l i d a d del per todo n, es ta c o m p a r a c i 6 n de largo plazo g e n e r a l m e n t e r e s u l t a ser b a s t a n t e a m b i g u a .