Clas Wihlborg

Real exchange rate effects of monetary shocks under fixed and flexible exchange rates

Abstract We analyze how the real exchange rate effects of monetary and real shocks depend on the exchange rate regime within a two-country rational expectations model with confusion about money and real shocks. The model demonstrates that the real exchange rate effect of unanticipated monetary shocks is negatively related to the variance of the domestically-created money supply growth, and that the effects of increasing domestic money variance on the real exchange rate are less under a fixed rate regime than under a flexible rate regime.

OPEC in world financial markets: Oil prices and interest rates

Abstract This article examines the relationship between the real rate of interest in world financial markets and the price of oil. If OPEC cannot be viewed as a ‘small’ participant in world financial markets, and should its savings and portfolio behavior differ from that of the rest of the world, then wealth shifts to or from OPEC would affect world interest rates. Subsequently, this paper examines the magnitude of oil price changes required to elicit a significant interest rate change. Our empirical results shed light on OPECs behavior, which at times may differ from a pure profit maximizing cartel. The short-run price elasticity of the world demand for oil is -0.04 and the long-run elasticity is -0.10. OPEC itself, as expected, faces higher elasticities of -0.08 and -0.36, respectively. The demand elasticity of oil with respect to ‘world’ GNP is 0.8. A major objective of this paper has been to determine the effect of changes in oil prices on world interest rates, and vice versa. Our results imply that only very large oil price increases will have a significant impact on world interest rates. However, oil prices show a non-negligible sensitivity to changes in world interest rates.

Contractual Price Rigidities and Exchange Rate Adjustment

Recent years have provided overwhelming evidence for substantial deviations from purchasing power parity as calculated from price indices for internationally traded goods and services. These deviations have significant implications for pricing policies of multinational firms. This article reports the findings of a comparative study of Swedish and Singaporean firms. It is aimed at assessing the importance of different kinds of contracts in corporate pricing strategies and in the macroadjustment process. Specifically, the purpose of the study is to investigate the importance of different implicit and explicit corporate strategies related to this issue.

The role of information acquisition and financial markets in international macroeconomic adjustment

Abstract International macroeconomic adjustment to money supply, aggregate expenditure, and relative demand disturbances is analyzed within a framework which emphasizes the role of information. Agents are unable to directly observe disturbances and may become fully informed about disturbances only by purchasing information. We analyze how relative price and exchange rate adjustment depends on the variances of the underlying disturbances while taking into account the incentive to acquire information. We also discuss the conditions which are necessary to preclude a free-rider problem whereby uninformed agents are able to extract from observation of financial market conditions the exact information of the information buyers.