Foreign exchange systems in a model of asset accumulation

This thesis is a theoretical study of the stability, growth and optimality properties of alternative foreign exchange regimes in a dynamic model of asset accumulation. The central objective is to evaluate exchange systems from the viewpoint of their stability properties and also their consistency with various short-run and long-run macroeconomic policy objectives. At times these aspects overlap: in particular the analysis pays close attention to the stability properties of exchange systems in the presence of active stabilisation policies. Chapter 1 is introductory and discusses the objectives and methodology of the study. It attempts essentially to place the particular lssues on which the study focuses into the broader context of macroeconomic theory and economic dynamics. Chapter 2 develops a small open economy model of asset accumulation under a variety of exchange regimes and capital mobility assumptions. The taxonomy developed enables evaluation of exchange regimes from the viewpoint of their dynamic stability properties. Chapter 3 constructs a model of the international economy under alternative capital mobility assumptions. Attention then focuses on the relative impact of random real and monetary disturbances on the international equilibrium under differing exchange systems. This provides a guide to the "stochastic" stability of the international economy under alternative balance of payments arrangements. Chapter 4 examines the question of optimal stabilisation and exchange market policies in a dynamic open economy model. In particular, the dynamic and stochastic stability of alternative exchange systems is evaluated when public authorities pursue active stabilisation policies. Finally, Chapter 5 examines the related issues of the optimal secular exchange regime and optimal monetary growth in a longrun asset accumulation framework. Chapter 6 summarises the major conclusions of the study