Capital Mobility and Devaluation in an Optimizing Model with Rational Expectations

17 Pages Posted: 23 Mar 2001 Last revised: 12 Jul 2010

See all articles by Maurice Obstfeld

Maurice Obstfeld

University of California, Berkeley; Peterson Institute for International Economics; National Bureau of Economic Research; Centre for Economic Policy Research

Date Written: October 1980

Abstract

This paper examines the effects of ex-change-rate policies when individuals maximize lifetime utility on the basis of rational expectations about the future. The economy studied is one in which the authorities allow free mobility of capital under a crawling-peg exchange-rate regime. Many industrializing economies have adopted a crawling peg as a means of reconciling disparate inflation rates at home and abroad, and some recent efforts to use the rate of crawl as an instrument of anti-inflation policy have attracted considerable interest (see Carlos Diaz Alejandro). Tools similar to those employed here have been applied by Guillermo Calvo (forthcoming) to study this type of exchange-rate management under conditions of capital immobility.

Suggested Citation

Obstfeld, Maurice, Capital Mobility and Devaluation in an Optimizing Model with Rational Expectations (October 1980). NBER Working Paper No. w0557. Available at SSRN: https://ssrn.com/abstract=264391

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