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Short-Term and Long-Term Interest Rates in a Monetary Model of a Small Open Economy

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Stephen J. Turnovsky

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Abstract

This paper analyzes the effects of both anticipated and unanticipated monetary and fiscal disturbances, on the dynamic behavior of a monetary model of a small open economy. It focuses on the adjustment of the short-term and long-term interest rates and the divergence of their transitional paths, particularly in anticipation of these disturbances. The analysis demonstrates how anticipation of a future policy change can generate perverse short-run behavior. The essential reason for the divergence between the short and long rates is that the latter is dominated by long-term expectations, while the former is primarily determined by current influences.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1716.

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Date of creation: Feb 1987
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Publication status: published as Turnovsky, Stephen J. "Short-Term and Long-Term Interest Rates in a Monetary Model of a Small Open Economy," Journal of International Economics, Vol. 20, No. 3/4. May 1986, pp. 291-311.
Handle: RePEc:nbr:nberwo:1716

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Blanchard, Olivier J., 1984. "Current and anticipated deficits, interest rates and economic activity," European Economic Review, Elsevier, vol. 25(1), pages 7-27, June. [Downloadable!] (restricted)
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  2. Dornbusch, Rudiger, 1976. "Exchange rate expectations and monetary policy," Journal of International Economics, Elsevier, vol. 6(3), pages 231-244, August. [Downloadable!] (restricted)
  3. Gray, Malcolm R & Turnovsky, Stephen J, 1979. "The Stability of Exchange Rate Dynamics under Perfect Myopic Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(3), pages 643-60, October. [Downloadable!] (restricted)
  4. Blanchard, Olivier J, 1981. "Output, the Stock Market, and Interest Rates," American Economic Review, American Economic Association, vol. 71(1), pages 132-43, March. [Downloadable!] (restricted)
  5. Jeffrey Sachs & Charles Wyplosz, 1984. "Real Exchange Rate Effects of Fiscal Policy," NBER Working Papers 1255, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Turnovsky, Stephen J & Miller, Marcus H, 1984. "The Effects of Government Expenditure on the Term Structure of Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(1), pages 16-33, February. [Downloadable!] (restricted)
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  1. Steve Ambler, 1988. "Fiscal and monetary policy in an open economy with staggered wages," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 124(1), pages 58-73, March. [Downloadable!] (restricted)
  2. Arman Mansoorian & Mohammed Mohsin, 2002. "The Employment, Investment and Current Account Effects of Exchange Rate Policies in a Cash-in-Advance Economy," Working Papers 2002_04, York University, Department of Economics. [Downloadable!]
  3. Arman Mansoorian & Mohammed Mohsin, 2002. "Monetary Policy in a Cash-in-Advance Economy Employment, Capital Accumulation and the Term Structure of Interest Rates," Working Papers 2002_02, York University, Department of Economics. [Downloadable!]
    Other versions:
  4. Walter Fisher, 2000. "The Term Structure of Interest Rates in a Small Open Economy: A Stochastic Analysis," Open Economies Review, Springer, vol. 11(3), pages 261-278, July. [Downloadable!] (restricted)
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