This paper is concerned with the optimal combination of sterilization and wage indexation in a small open economy subject to various disturbances. In most cases the effects of these policy instruments are interdependent such that they act like a single instrument. At the optimum, in addition to the well-known substitutability of foreign exchange intervention and wage indexation, the complementarity of foreign exchange intervention and sterilization is obtained. The relationship between the degree of capital mobility and the optimal combination of the policy instruments is also examined. [E52, F41]
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Volume (Year): 14 (2000) Issue (Month): 4 (December) Pages: 59-75 Download reference. The following formats are available: HTML
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