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he exchanges rate,. When, the policy authority allows the exchange rate to float freely and no change in domestic money supply. Under a system of perfectly fixed exchange rates, the policy authority uses direct exchange market intervention to hold the exchange rate constant and . Value of that fall between 0 and ∞ are characteristic of intermediate intervention policies. Negative values of are associated with intervention activities that generate changes in the exchange rate that are either of the opposite sign or, if of the same sign, larger than the changes that would have occurred under a pure float.

Substituting Eq. (2.14) and Eq. (2.15) into Eq. (2.13) reveals that the demand for money in this economy is determined by:

Eq. (2.18)

Under the assumption that the money market clears continuously, for all t. Using this assumption together with Eq. (2.16), Eq. (2.17) and Eq. (2.18) allows money market equilibrium to be expressed in deviation form as:

Eq. (2.19)

Eq. (2.19) show that the magnitude of exchange rate change needed to restore money market equilibrium subsequent to an exogenous disturbance depends on the policy authority’s choice of. In this model, the possible sources of exogenous disturbances to the economy are: changes in the foreign price level , changes in the level of domestic output , changes in the foreign interest rate level , changes in domestic credit and the random money demand shock .

Eq. (2.19) indicates that the change in the value of exchange rate in small open economy is given by:

Eq. (2.20)

where

The term inside the parentheses is the excess demand of money that is generated by the combination of exogenous disturbances that occur in period t and also by the agent’s expectations about exchange rate changes. Eq. (2.20) indicates that the policy authority’s choice of and the structural parameters and jointly determine the magnitude of equilibrating exchange rate changes that are observed. When , and indicating policy authority has chosen to hold the exchange rate fixed using some combination of direct and indirect intervention. The policy authority refrains from all exchange market intervention when and . In this case any existing excess demand for domestic money is eliminated by private market forces and . When , is the same sign but greater than the exchange rate change that would have been observed in the absence of intervention by the policy authority. For , the observed exchange rate change, , and the change in exchange rate that would have been observed in the absence of intervention are of the opposite sign.

Weymark define exchange market pressure as the measurement of total excess demand for a currency in international markets as the exchange rate change that would have been required to remove this excess demand in the absence of exchange market intervention, given the expectations generated by the exchange rate policy actually implemented.

The exchange market pressure formula that is consistent with the model employed can be obtained from Eq. (2.20) can be expressed as:

Eq. (2.21)

The elasticity converts observed reserve changes into equivalent exchange rate units. In order for this conversion to be accomplished without altering the underlying size of the excess demand associated with the components of and the ac本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。