How well can the New Open Economy Macroeconomics explain the exchange rate and current account?

New Open Economy Macroeconomics

Starting in the early 1990s, the New Open Economy Macroeconomics refers to a vast body of literature embracing a new theoretical framework for policy analysis in open economy, with the goal of overcoming the limitations of the Mundell-Fleming model, while preserving the empirical wisdom and policy friendliness of traditional analysis. Building general equilibrium models with imperfect competiti...

The Appropriate Exchange Rate System and the Regulation and Forecast of Exchange Rate for Iran's Economy

Current Account Imbalances, Thriftiness and the Real Exchange Rate in a Growing Economy

This paper analyses the theoretical relevance of the dynamical aspects of growth on the discussion about the observed positive correlation between per capita real income and real exchange rates. With this purpose, we develop a simple exogenous growth model where the internal, external and intertemporal equilibrium conditions of a typical macroeconomic model are imposed; this last one through th...

Discussion of The Exchange Rate and the Current Account

The principal purpose of the paper by Bullock, Grenville and Heenan is to understand the role that the exchange rate plays in balance of payments adjustment. Presumably, behind this purpose are two more fundamental concerns the ability to: • forecast likely outcomes; and • guide policy in response to certain shocks. The successful pursuit of the policy purpose also relies to a large extent on t...

The Forward Exchange Rate and Macroeconomics

This paper discusses the conditions under which a risk premium is incorporated in the forward exchange rate. A new condition for the existence of a risk premium is proposed. We show that earlier models of the risk premium, which emphasize either the role of net foreign investment or of the relative supplies of ‘outside* assets, are not suited for assessing the effects of changes in macroeconomi...