Keynsian Model with Remittances, Demand for Foreign Currency and Foreing Interest Rate
Abstract
This is a Keynsian mathematical model that includes the demand for foreign currency and the interest rate abroad in the IS. Phenomena that sometimes is present in developing countries. As a result, we got an IS more vertical than the normal or Keynsian case, and in the LM curve the interest rate outside the country is a shift factor. In the balance of payments equation with flexible exchange rates, we estimated that the remittances sent from abroad cause a sift factor in the BP curve. We conclude that the demand for foreign currency, remittances and flexible exchange rates makes fiscal policy less effective than the standard model in changing the level of income, where there is some degree of capital mobility.Developing countries need to create their own models to apply economic policies specially monetary and fiscal policies to get better result in growth for the wellbeing of their people.
Keywords: Keynsian model, Remittances, Foreign currency, Foreign interest rate, Balance of payment.
References
Keynes JM (1936) The General Theory of Employment, Interest and Money, MacMillan and Cambridge University Press, Cambridge UK.
Hicks JR (1937) Mr. Keynes and the "Classics"; A suggested interpretation. Econometrica, 5(2):147-159.
Samuelson PA (1939) Interaction between the multiplier analysis and the principle of acceleration. Review of Economics and Statistics, 75-78.
Phillips AW (1958) The relation between unemployment and the rate of change of money wage rates in the United Kingdom, 1861-1957, Economica 25(4):283-289.
Friedman M (1968) The role of monetary policy. American Economic Review, 1:LVIII.
Phelps ES (1968) Money wage dynamics and labour market equilibrium. J. Political Economy, 7:678-711.
Tobin J (1969) A general Equilibrium Approach to Monetary Theory, Journal of Money Credit and Banking 1: (Feb) 15-29.
Barro J, Gordon D (1983) A positive theory of monetary policy in a natural rate model. J. Politcal Economy, 91((4):589-610.
Sargent TJ (1986), Rational Expectations and Inflation, New York: HarperCollins.
Goodhart C (1989) The conduct of monetary policy. Economic Journal, 99:293-346.
NickellS (1990) Inflation and the UK Labor Market, Oxford Review of Economic Policy; 6(4) Winter.
Lockwood B, Miller M, Zhang L (1998) Designing monetary policy when unemployment persists. Economica 65 :327-45.
International Monetary Fund (1992) Macroeconomic Adjustment: Policy Instruments and Issues, IMF Institute, Washington D.C.
1Wallis KF (1989) Macroeconomic forecasting: A Survey. The Economic Journal, 99(394):28-61.
MPC Bank of England (www.bankofengland.co.uk) The Transmission Mechanism of Monetary Policy.
Wickens MR (1986) The Estimation of Linear Models with Future Rational Expectations by Efficient and Instrumental Variable Methods, CEPR Discussion Papers 111.
Kydland FE, Prescott EC (1977) Rules rather than discrection: the inconsistency of optimal plans. J. Political Economy, 85:3:473-491.
Solow, RM (1956) A contribution to the theory of economic growth. Quarterly J. Economics 70(1):65-94.
Lucas RE (1988) On the mechanics of economic development. J. Monetary Economics 22:3-42, North Holland.
Romer D (2006) Advanced Macroeconomics, 3rd Edition, McGraw-Hill, New York.
Mankiw NG, Romer D, Weil DN (1992) A contribution to the empirics of economic growth. The Quarterly J. Economics, 107(2):407-437.
Parente SL, Prescott EC (1993) Changes in the Wealth of Nations. Federal Reserve Bank of Minneapolis Quarterly Review, 17(2):3-16.
Dancourt O (2009) Choquesexternos y polÃticamonetaria; EconomÃa Vol. XXXII, N° 64, semester julio-diciembre 127-173.
Mendoza W (2006) Puede una expansión fiscal ser contractiva? La efectividad de la polÃtica fiscal y la sostenibilidad de la deuda pública, Pontificia Universidad Católica del Perú, cuadernos de trabajo.
Chu H, Silva R (2009) A post Keynesian model of growth and wealth distribution: government’s optimal tax choice using an intertemporal infinitely representative agent. Revista de Economia Mackenzie, 7(1):9-29.
Ramsey FP (1928) A mathematical theory of saving. Economic Journal, 38(152):543-559.
Carranco Z, Venegas-Martinez F (2009) PolÃticas fiscal y monetaria óptimas en una economÃa pequeña y abierta, Problemas del Desarrollo, Vol. 40, núm. 156, enero-marzo.
Shone R (2002) Economic dynamics, 2th Edition, Cambridge University Press, Cambridge UK.
Young W, Darity W (2004) "IS-LM-BP: An Inquest". History of Political Economy 36 (Suppl 1):127-164.
Dornbusch R (1976) Expectations and Exchange Rate Dynamics. J. Political Economy 84(6):1161-1176.
