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"Estimated Output, Price, Interest Rate, and Exchange Rate
Linkages Among Countries," Journal of Political Economy,
June 1982, 507-535.
pdf file (1,359KB).
Abstract
This article provides quantitative estimates from an econometric model
of the output, price, interest rate, and exchange rate linkages among
a number of countries. The linkages are examined by changing various policy
variables and observing the resulting changes in the endogenous variables.
The model is also used to estimate what is called the "exchange rate effect"
on inflation. One of the ways in which monetary and fiscal policies may
affect a country's inflation rate is by first influencing its exchange rate,
which in turn influences import prices, which in turn influence domestic
prices. The model allows this exchange rate effect on inflation to be
estimated.
Comments
This paper uses the specification of the multicountry econometric model
in 1981#1 and 1981#3
to examine various economic linkages among countries.
Section V presents estimates of the exchange rate effect on inflation.
The discussion in Chapter 9, Section 9.5, in
1984#2 (see also the notes on page 464) is taken
from this paper.