José Luís Oreiro () (Department of Economics, Universidade Federal do Paraná) Breno Pascualote Lemos () (Department of Economics, Pontifícia Universidade Católica do Paraná)
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The aim of this article is to present a modified kaldorian cumulative causation model in order to discuss the effects of changes in the monetary policy rules and on the degree of openness in capital account over dynamic trajectories of growth rate of GDP, nominal interest rate, nominal and real exchanges rates and the rate of inflation. The computational simulation of the theoretical model shows that the monetary policy rules are relevant only to the determination of growth rate of GDP if income elasticity of exports is a function of real exchange rate. In other words, a real exchange rate appreciation must cause an increase in the level of productive specialization of the economy in order to monetary policy be non-neutral in the long-run. In this setting we argue that a monetary policy that induces growth must seek to minimize the volatility of nominal interest rates and adopt a high speed of convergence of domestic inflation to the long-run inflation target, which must be set in accordance to international levels. We also show that the degree of openness in capital account is irrelevant over the determination of long-run growth either in the case where real exchange rate do not affect the productive specialization of the economy as where it affects.
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Paper provided by Universidade Federal do Paraná, Department of Economics in its series Working Papers with number
0068.
Length: 21 pages Date of creation: 2007 Date of revision: Handle: RePEc:fup:wpaper:0068
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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 F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies