Showing papers by "Jeremy Greenwood published in 1983"
TL;DR: In this paper, a critical examination of the relationship between the exchange rate and the current account in a small open economy is undertaken, and the question of the role of an optimal monetary policy and the choice of an exchange rate regime in an uncertain environment is raised.
81 citations
TL;DR: In this article, the authors extend Helpman's model by making two alterations in his setup: (1) to allow production to be endogenously determined as a function of labor force participation and (2) to enable welfare levels to be dependent on labor service as well as on consumption.
Abstract: In an interesting paper in this Journal, Elhanan Helpman (1981) develops a simple two-country model to compare the welfare levels that are achieved under different exchange rate regimes. In a world characterized by perfect foresight, his basic finding is that equilibrium consumption allocations, and hence welfare levels, are identical under a floating exchange rate system and a (one-sided peg) fixed exchange rate regime. This result is due to Helpman's assumption that output is determined exogenously, which allows a separation of the real and monetary sides of the economy. The purpose of this paper is to extend Helpman's model by making two alterations in his setup: (1) to allow production to be endogenously determined as a function of labor force participation and (2) to allow welfare levels to be dependent on labor service as well as on consumption. The main conclusion then obtained is that a country may achieve a higher welfare level under a flexible exchange rate regime than under a fixed exchange rate regime, since it is able to choose an optimal rate of inflation (or currency depreciation).
59 citations
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