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The natural rate of interest in a small open economy

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  • Fernando de Holanda Barbosa

    ()
    (FGV)

Abstract

The goal of this paper is to show that the natural rate of interest in a small open economy, with access to the world capital markets, is equal to the international real rate of interest. We show this property by using the infinitely-lived overlapping generations model and we use this model to analyze both fixed and flexible exchange rate regimes.

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File URL: http://www.economiaetecnologia.ufpr.br/textos_discussao/texto_para_discussao_ano_2011_texto_11.pdf
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Bibliographic Info

Paper provided by Universidade Federal do Paraná, Department of Economics in its series Working Papers with number 0121.

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Length: 22 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:fup:wpaper:0121

Note: Creation Date corresponds to the year in which the paper was published on the Department of Economics website. The paper may have been written a small number of months before its publication date.
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Keywords: small open economy; natural rate of interest; complete and incomplete asset markets;

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  1. Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers.
  2. Robert J. Barro, 1995. "Inflation and Economic Growth," NBER Working Papers 5326, National Bureau of Economic Research, Inc.
  3. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2005. "International risk-sharing and the transmission of productivity shocks," International Finance Discussion Papers 826, Board of Governors of the Federal Reserve System (U.S.).
  4. David K. Backus & Gregor W. Smith, 1992. "Consumption and Real Exchange Rates in Dynamic Exchange Economies with Nontraded Goods," Working Papers 92-7, New York University, Leonard N. Stern School of Business, Department of Economics.
  5. Xavier Sala-I-Martin, 1997. "Transfers, Social Safety Nets, and Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 81-102, March.
  6. Lane, Philip R., 2001. "The new open economy macroeconomics: a survey," Journal of International Economics, Elsevier, vol. 54(2), pages 235-266, August.
  7. Abigail Barr, 1995. "The missing factor: entrepreneurial networks, enterprises and economic growth in Ghana," CSAE Working Paper Series 1995-11, Centre for the Study of African Economies, University of Oxford.
  8. Maurice Obstfeld and Kenneth Rogoff., 1995. "Exchange Rate Dynamics Redux," Center for International and Development Economics Research (CIDER) Working Papers C95-048, University of California at Berkeley.
  9. Robert Kollmann, 2002. "Monetary policy rules in the open economy: effects of welfare and business cycles," ULB Institutional Repository 2013/7628, ULB -- Universite Libre de Bruxelles.
  10. Gianluca Benigno & Christoph Theonissen, 2006. "Consumption and Real Exchange Rates with Incomplete Markets and Non-Traded Goods," CEP Discussion Papers dp0771, Centre for Economic Performance, LSE.
  11. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Closing Small Open Economy Models," NBER Working Papers 9270, National Bureau of Economic Research, Inc.
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  13. Martin, Philippe & Rogers, Carol Ann, 1995. "Stabilization Policy, Learning by Doing, and Economic Growth," CEPR Discussion Papers 1130, C.E.P.R. Discussion Papers.
  14. Levin, Andrew T., 2002. "Comment on: Monetary policy rules in the open economy: effects on welfare and business cycles," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 1017-1023, July.
  15. Cavallo, Michele & Ghironi, Fabio, 2002. "Net foreign assets and the exchange rate: Redux revived," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 1057-1097, July.
  16. Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Closed versus Open Economies: An Integrated Approach," NBER Working Papers 8604, National Bureau of Economic Research, Inc.
  17. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  18. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
  19. Ben S. Bernanke & Kenneth Rogoff, 2001. "Editorial in "NBER Macroeconomics Annual 2000, Volume 15"," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 1-4 National Bureau of Economic Research, Inc.
  20. Thomas Laubach and John C. Williams, 2001. "Measuring the Natural Rate of Interest," Computing in Economics and Finance 2001 35, Society for Computational Economics.
  21. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  22. Giammarioli, Nicola & Valla, Natacha, 2004. "The natural real interest rate and monetary policy: a review," Journal of Policy Modeling, Elsevier, vol. 26(5), pages 641-660, July.
  23. Calvo, Guillermo A., 1987. "Real exchange rate dynamics with nominal parities Structural change and overshooting," Journal of International Economics, Elsevier, vol. 22(1-2), pages 141-155, February.
  24. Obstfeld, Maurice & Rogoff, Kenneth S., 1995. "Exchange Rate Dynamics Redux," Scholarly Articles 12491026, Harvard University Department of Economics.
  25. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, vol. 38(2), pages 183-198, March.
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