Girol Karacaoglu

On repetitive control and the behaviour of a middle-aged consumer

Abstract This paper studies the relationship between repetitive control effectiveness as measured by a performance index, and the parameters of a simple discrete linear-quadratic model with imperfect state information. The results indicate the existence of processes for which a properly designed repetitive control has substantial advantages over a classical stochastically optimal solution. In particular, it is shown that repetitive control, which for a consumer means repetitive adjustments of consumption to the actual level of wealth, may result in values of the expected loss function that are lower than those obtained for the stochastically optimal imperfect-state-information solution.

Exchange rate dynamics under gradual portfolio adjustment

Abstract This paper generalizes the asset market approach to exchange rate determination by introducing gradual adjustment of asset-holder portfolios. The influence of different speeds of portfolio adjustment on exchange rate dynamics is considered. Asset market models characterized by instantaneous portfolio equilibrium appear as a special case. The dynamics of exchange rate adjustment following an open-market operation are shown to be qualitatively similar to those of the orthodox instantaneous portfolio equilibrium models. Thus, gradual portfolio adjustment does not compromise the qualitative results derived with the help of those models. The speed of portfolio adjustment is however shown to influence the degree of exchange rate volatility. In particular, the phenomenon of exchange rate overshooting depends crucially on the speed of portfolio adjustment.

Liquidity preference, loanable funds, and exchange-rate and interest-rate dynamics

Abstract This paper studies the implications of the distinction between the liquidity-preference and loanable-funds theories of interest for exchange-rate and interest-rate dynamics in the context of a model similar to ones analyzed by Dornbusch (1976) and Frenkel and Rodriguez (1982) . With focus on the overshooting phenomenon, the short-run behavior of the exchange rate and the interest rate, relative to their long-run values, is studied with respect to a monetary shock. It is shown that the two theories may imply substantially different impact-effects on endogenous variables and that the adjustment paths of these variables will vary between the two theories.

Exchange-rate dynamics under gradual portfolio and commodity-price adjustment

Abstract This paper studies exchange-rate dynamics within the context of a model that allows for gradual portfolio and commodity-price adjustment. The model encompasses as a special limiting case the orthodox portfolio-balance model wherein portfolio adjustment is instantaneous. The focus of the paper is on the process of adjustment to a once-and-for-all open market operation under a bond-financed government budget deficit. The generalized portfolio-balance model which we formulate generates a varied menu of adjustment paths for the exchange rate and the aggregate price level which are more successful than the orthodox instantaneous portfolio-equilibrium models in accomodating the divergent experiences of various countries.

Devaluation, capital mobility, and expectations in an optimizing model

Abstract A simple optimizing model (overlapping generations, with a finance constraint) is used to examine how the results of a devaluation are affected by (a) capital mobility, and (b) the devaluations being fully anticipated by the public. The results are compared with those previously obtained using aggregative models of the portfolio balance type. This comparison sheds some light on the robustness in general of the results of such models.

“Partial” approaches to balance-of-payments adjustment yield consistent predictions under identical assumptions

Zusammenfassung“artial“-AnsÄtze des Zahlungsbilanzausgleichs ergeben unter identischen Annahmen konsistente Aussagen. — Dieser Aufsatz zeigt, da\ InkompatibilitÄten in den Grundannahmen die einzige Quelle für mögliche Widersprüche in den Aussagen sind, die sich aus dem “onetÄren” Ansatz und dem “omponenten“-Ansatz des Zahlungsbilanzausgleichs ergeben. Zwei Modelle werden als Prototypen verwendet, um zu zeigen, da\ dann, wenn die den Modellen zugrundeliegenden Annahmen auch bei einem Wechsel in den Determinanten der Zahlungsbilanzströme unverÄndert beibehalten werden, die Aussagen vollkommen konsistent sind. Die Ergebnisse der Modelle werden hinsichtlich der Vorzeichen verglichen, die die Ansto\wirkungen verschiedener exogener Schocks auf die Zahlungsbilanz unter “onetaristischen” und “eynesianischen” Annahmen aufweisen.RésuméLes approches «partielles» à l’ajustement de la balance des paiements produisent des prédictions consistantes sous des suppositions identiques. — Cet article souligne que l’incompatibilité des suppositions est la seule source pour des inconciliabilités possibles des prédictions qui résultent des approches «monétaires» et des «composantes» en matière de l’ajustement de la balance des paiements. L’auteur applique deux modèles de prototype pour démontrer qu’on obtient des prédictions parfaitement consistantes indépendamment du choix des déterminants directs, supposé que les suppositions sur le monde auquel le modèle se réfère restent intactes si l’on varie les déterminants directs des flux de la balance des paiements. Les prédictions des modèles introduits sont comparées à l’égard des signes des effets immédiats des différents chocs exogènes sur la balance des paiements sous des suppositions «monétaristes» et «keynésiennes».ResumenAproximaciones «parciales» para predicciones consistentes de beneficios de ajuste de balanza de pagos bajo supuestos idénticos. — Este artículo individualiza incompatibilidades de supuestos subyacentes como la ünica fuente de posibles inconsistencias en las predicciones de aproximaciones «monetarias» y de «componentes» de ajustes de balanza de pagos. Se utilizan dos prototipos de modelos para demostrar que siempre que los supuestos acerca del mundo al que los modelos se aplican se mantienen intactes al cambiar entre sets de déterminantes próximas de flujos de balanza de pagos, se obtienen predicciones perfectamente consistentes irrespectivamente de la elección de las déterminantes próximas. Las predicciones de los modelos indicados se comparan bajo supuestos «monetaristas» y «keynesianos» en consideración de los signos de los efectos del impacto de variados choques exógenos sobre la balanza de pagos.