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Short-term and long-term interest rates in a monetary model of a small open economy

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  • Turnovsky, Stephen J.

Abstract

This paper analyzes the effects of both anticipated and unanticipated monetary and fiscal disturbances, on the dynamic behavior of a monetary model of a small open economy. It focuses on the adjustment of the short-term and long-term interest rates and the divergence of their transitional paths, particularly in anticipation of these disturbances. The analysis demonstrates how anticipation of a future policy change can generate perverse short-run behavior. The essential reason for the divergence between the short and long rates is that the latter is dominated by long-term expectations, while the former is primarily determined by current influences.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 20 (1986)
Issue (Month): 3-4 (May)
Pages: 291-311

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Handle: RePEc:eee:inecon:v:20:y:1986:i:3-4:p:291-311

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Web page: http://www.elsevier.com/locate/inca/505552

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References

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  1. Willem H. Buiter & Marcus Miller, 1983. "Changing the Rules: Economic Consequences of the Thatcher Regime," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 305-380.
  2. Dornbusch, Rudiger, 1976. "Exchange rate expectations and monetary policy," Journal of International Economics, Elsevier, vol. 6(3), pages 231-244, August.
  3. Turnovsky, Stephen J & Miller, Marcus H, 1984. "The Effects of Government Expenditure on the Term Structure of Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(1), pages 16-33, February.
  4. Jeffrey Sachs & Charles Wyplosz, 1984. "Real Exchange Rate Effects of Fiscal Policy," NBER Working Papers 1255, National Bureau of Economic Research, Inc.
  5. Blanchard, Olivier J, 1981. "Output, the Stock Market, and Interest Rates," American Economic Review, American Economic Association, vol. 71(1), pages 132-43, March.
  6. Olivier J. Blanchard, 1991. "Current and Anticipated Deficits, Interest Rates and Economic Activity," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 361-390 National Bureau of Economic Research, Inc.
  7. Gray, Malcolm R & Turnovsky, Stephen J, 1979. "The Stability of Exchange Rate Dynamics under Perfect Myopic Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(3), pages 643-60, October.
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Cited by:
  1. repec:spo:wpecon:info:hdl:2441/6125 is not listed on IDEAS
  2. Arman Mansoorian & Mohammed Mohsin, 2004. "Monetary policy in a cash-in-advance economy: employment, capital accumulation, and the term structure of interest rates," Canadian Journal of Economics, Canadian Economics Association, vol. 37(2), pages 336-352, May.
  3. Steve Ambler, 1988. "Fiscal and monetary policy in an open economy with staggered wages," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 124(1), pages 58-73, March.
  4. Bruno Ducoudre & Antoine Bouveret, 2007. "On the Contingency of Equilibrium Exchange Rates with Time - Consistent Economic Policies," Sciences Po publications 2007-08, Sciences Po.
  5. Walter Fisher, 2000. "The Term Structure of Interest Rates in a Small Open Economy: A Stochastic Analysis," Open Economies Review, Springer, vol. 11(3), pages 261-278, July.
  6. Kempa, Bernd & Nelles, Michael & Pierdzioch, Christian, 1999. "The term structure of interest rates in a sticky-price target zone model," Journal of International Money and Finance, Elsevier, vol. 18(5), pages 817-834, October.
  7. Arman Mansoorian & Mohammed Mohsin, 2002. "The Employment, Investment and Current Account Effects of Exchange Rate Policies in a Cash-in-Advance Economy," Working Papers 2002_04, York University, Department of Economics.

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