Citation

Discussion Paper Details

Please find the details for DP166 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: 'Locomotive' and Other Channels of Transmission under Flexible Exchange Rates

Author(s): Jorge Braga de Macedo

Publication Date: March 1987

Keyword(s): Exchange Rates, Exports, Imports, Income Shocks, Intertemporal Model, Locomotive and Transmission Channels

Programme Area(s): International Macroeconomics

Abstract: This paper presents a simple model of the effects of exchange rate flexibility on the transmission of income shocks. The starting point is the traditional channel through exports and imports known as the "locomotive". The intertemporal exchange rate model presented here also allows for the effect of future internal and external shocks on home income. Furthermore, it is shown that exchange rate movements work in the opposite direction to the locomotive effect, so that a foreign boom also causes contemporaneous recessionary pressures in the home economy. The model is simulated in order to assess the relative magnitude of these transmission channels. While the adjusted locomotive channel remains important, the others cannot be neglected, especially if the home country has a negative foreign asset position.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=166

Bibliographic Reference

Braga de Macedo, J. 1987. ''Locomotive' and Other Channels of Transmission under Flexible Exchange Rates'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=166