Buoyant Economies


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Below is a link to a model that you can download to assess the effect of the optimum exchange rate system.

It allows you to set export growth targets for primary, secondary and tertiary industries and then test the effect of these policies under different exchange rate mechanisms.

The model offers the option of two variable exchange rate systems:

  • the closed option (also commonly called the floating exchange rate system); and

  • the open option (also called the optimum exchange rate system).

The term "closed" is used for the floating exchange rate system because it isolates the domestic money supply from international transactions.  The exchange rate moves to ensure this outcome.

The term "open" is used for the optimum exchange rate system because it allows international transactions to affect the domestic money supply.  That is, money can flow in and out of the economy without altering the exchange rate.  The model is designed only to demonstrate the differences in the exchange rate.  It has no wider application.

This model is a simplified model. It does not include inflation nor interest rate.  Interest rates are usually used to control the growth of bank credit.  That can be achieved directly in this model.

The model is written in Microsoft Excel and uses macros. Some computers warn you that the model contains macros.   It will not run on Apple computers. 

Macro Model (121 KB .xls)

If you do not wish to download the model with a macro, you can download the model without the macro and put the macro in manually.  You can read the macro to check that the operations are above board.