Strategies for Modeling Exchange Rates and Capital Flows in Multi-Country Macroeconomic Models

34 Pages Posted: 15 Feb 2006

See all articles by Paul R. Masson

Paul R. Masson

International Monetary Fund (IMF) - Research Department; The Brookings Institution

Date Written: April 23, 1987

Abstract

The paper surveys exchange rate models, but in a way that differs from existing surveys because it focusses on alternatives available for inclusion in structural multi-country models. It emphasizes that non-structural time-series models or reduced forms are not useful in this context: what is needed are structural models that are theoretically consistent with the rest of the model, whether or not they outperform a random walk. Alternative exchange rate and capital flow specifications that are both tractable and satisfy world adding-up constraints are proposed, and the modeling of expectations is discussed.

JEL Classification: 2120, 4314

Suggested Citation

Masson, Paul R., Strategies for Modeling Exchange Rates and Capital Flows in Multi-Country Macroeconomic Models (April 23, 1987). IMF Working Paper No. 87/32, Available at SSRN: https://ssrn.com/abstract=884710

Paul R. Masson (Contact Author)

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