Capital Flows and Exchange Rate Determination
LINK Meeting Deutsche Bundesbank Session Frankfurt, September 1982
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Beschreibung
By Lawrence R. Klein, Philadelphia, Pennsylvania, U. S. A., and Wilhelm E. Krelle, Bonn (Received October 20, 1983) At the time of planning the initiation of Project LINK (1968) for studying the international transmission mechanism, especially among the major industrial countries, the Bretton Woods system of fixed parities was still operational, although it was in its final stages. The original system was built with exogenous exchange rates, fixed by agreement but not necessarily constant. Ever since the time of the Smithsonian agreement and the introduction of the managed float, the LINK system has been dealing with changing rates, but without a well established equation system for estimat ing rates. We supported many investigations into systems of variable rates. One used control theory, interchanging the status of external balances and exchange rates. The latter were treated as exogenous instrument variables selected so as to attain endogenous target values for the former. The squared distance from target values was minimized. This approach, not using much theory, was adopted at an early stage because few data points existed with flexible ex change rates.
Autor*in
Lawrence R. Klein