Mathematical Study on the Expectation Factors of the Deviation between Internal Price and External Price of Non-International Currency

Jian Zhang

Abstract


Based on the theoretical model of money in the utility function with micro-foundation, by means of the method of mathematical analysis, the expectation factors of the deviation between internal price and external price of non-international currency are analyzed, the clear interval of exchange rate expectation and price expectation which lead to the deviation between internal price and external price of non-international currency are calculated. This study finds that: without considering the stochastic impact, while the expected exchange rate is less than or equal to the current exchange rate, there will be no deviation between internal price and external price of non-international currency, regardless of the size of the expected price; while the expected exchange rate is greater than the current exchange rate, and the price expectation keeps in a certain range at the same time, there will be deviation between internal price and external price of non-international currency. On this basis, some new ideas about monetary policy and reform of exchange rate are put forward.

Keywords


Internal Price and External Price of Non-International Currency; Expectation Factors; Deviation Interval; Money in the Utility Function


DOI
10.12783/dtssehs/ssme2019/34811

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