Real asset returns, inflation and activity in a small, open, Cash-in-Advance economy
AbstractThe effects of inflation are worked out for a small open economy with Cash-in-Advance (CIA) constraints on bond purchases. If all transactions are subject to CIA constraints, an increase in the inflation rate will reduce savings, bringing about a current account deficit, while the capital stock will be unaffected. If investment is not subject to CIA constraints, an increase in the inflation rate will encourage investment and reduce savings, bringing about a current account deficit. Numerical evaluation of the model gives rise to falls in real interest rates that are in line with recent empirical findings.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Money and Finance.
Volume (Year): 32 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/30443
Real asset returns; Inflation; Economic activity; Open economy; Cash-in-Advance;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
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