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Do Fixed Exchange Rates Fetter Monetary Policy? A Credit View

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  • Burton A. Abrams

    ()
    (Department of Economics, University of Delaware)

  • Russell F. Settle

    ()
    (Department of Economics,Western Washington University)

Abstract

The Bernanke-Blinder credit-view model is expanded to encompass a small, open economy with fixed exchange rates. In contrast to conventional wisdom and traditional models, monetary policy is resurrected as a stabilization tool. Further, various financial sector shocks are shown to have real aggregate demand effects. We show that independent monetary policy actions can have substantive impacts on aggregate demand despite perfect capital mobility and adherence to a fixed exchange rate regime.

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File URL: http://graduate.lerner.udel.edu/sites/default/files/ECON/PDFs/RePEc/dlw/WorkingPapers/2003/UDWP2003-09.pdf
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Bibliographic Info

Paper provided by University of Delaware, Department of Economics in its series Working Papers with number 03-09.

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Length: 18 pages
Date of creation: 2003
Date of revision:
Publication status: Published in Eastern Economic Journal, Vol. 33, No.2, Spring, 2007.
Handle: RePEc:dlw:wpaper:03-09

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Postal: Purnell Hall, Newark, Delaware 19716
Phone: (302) 831-2565
Fax: (302) 831-6968
Web page: http://www.lerner.udel.edu/departments/economics/department-economics/
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Keywords: Money Supply; Credit; Money Multipliers; Open Economy Macroeconomics;

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  1. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-39, May.
  2. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
  3. Mark Gertler, 1988. "Financial structure and aggregate economic activity: an overview," Proceedings, Federal Reserve Bank of Cleveland, pages 559-596.
  4. Volker Treichel, 1997. "Broad Money Demand and Monetary Policy in Tunisia," IMF Working Papers 97/22, International Monetary Fund.
  5. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  6. Alicia García-Herrero, 1997. "Monetary Impact of a Banking Crisis and the Conduct of Monetary Policy," IMF Working Papers 97/124, International Monetary Fund.
  7. John C. Driscoll, 2003. "Does bank lending affect output? evidence from the U.S. states," Finance and Economics Discussion Series 2003-31, Board of Governors of the Federal Reserve System (U.S.).
  8. Adolfo Barajas & Ralph Chami & Thomas Cosimano, 2004. "Did the Basel Accord Cause a Credit Slowdown in Latin America?," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  9. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  10. Cuevas, Mario A., 2002. "Money demand in Venezuela : multiple cycle extraction in a cointegration frmaework," Policy Research Working Paper Series 2844, The World Bank.
  11. Shatz, Howard J. & Tarr, David G., 2000. "Exchange rate overvaluation and trade protection - lessons from experience," Policy Research Working Paper Series 2289, The World Bank.
  12. Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc.
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