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Capital Mobility, Consumption Substitutability and the Effects of Monetary Policy in Open Economies

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  • Pierdzioch Christian

    (Kiel Institute for World Economics, Kiel, Germany)

Abstract

I use a dynamic general equilibrium two-country optimizing model to analyze the implications of international capital mobility for the short-run effects of monetary policy in an open economy. The model implies that the substitutability of goods produced in different countries plays a central role for the impact of changes in the degree of international capital mobility on the effects of monetary policy. Paralleling the results of the traditional Mundell-Fleming model, a higher degree of international capital mobility magnifies the short-run output effects of monetary policy only if the Marshall-Lerner condition, which is linked to the cross-country substitutability of goods, holds.

Suggested Citation

  • Pierdzioch Christian, 2005. "Capital Mobility, Consumption Substitutability and the Effects of Monetary Policy in Open Economies," German Economic Review, De Gruyter, vol. 6(1), pages 79-94, February.
    • Handle: RePEc:bpj:germec:v:6:y:2005:i:1:p:79-94
    DOI: 10.1111/j.1465-6485.2005.00122.x
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    Cited by:

    1. Engler, Philipp & Tervala, Juha, 2011. "Beggar-thyself or beggar-thy-neighbour? The welfare effects of monetary policy," Economic Modelling, Elsevier, vol. 28(4), pages 2034-2040, July.
    2. Sastre, Luis, 2012. "Simultaneity between export and import flows and the Marshall–Lerner condition," Economic Modelling, Elsevier, vol. 29(3), pages 879-883.
    3. Luis Sastre, 2018. "Marshall-Lerner Condition and the Balance of Payments Constrained Growth: The Spanish Case," Review of Economics & Finance, Better Advances Press, Canada, vol. 13, pages 29-38, August.
    4. Ganelli, Giovanni & Tervala, Juha, 2011. "International transmission of environmental policy: A New Keynesian perspective," Ecological Economics, Elsevier, vol. 70(11), pages 2070-2082, September.
    5. Luis Satre Jiménez, 2010. "Economías abiertas y condición de Marshall-Lerner," Economic Analysis Working Papers (2002-2010). Atlantic Review of Economics (2011-2016), Colexio de Economistas de A Coruña, Spain and Fundación Una Galicia Moderna, vol. 9, pages 1-8, November.

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    Keywords

    Monetary policy; capital mobility;

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