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Current account and exchange rate behaviour under inflation targeting in a small open economy

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Abstract

A model of a small open economy is used to analyse the behaviour of the current account and the real exchange rate in a regime of inflation targeting a la New Zealand. The steady state and the dynamic behaviour of the economy under various shocks are discussed.

Suggested Citation

  • Francisco Nadal De Simone, 1997. "Current account and exchange rate behaviour under inflation targeting in a small open economy," Reserve Bank of New Zealand Discussion Paper Series G97/4, Reserve Bank of New Zealand.
    • Handle: RePEc:nzb:nzbdps:1997/04
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    1. Glick, Reuven & Rogoff, Kenneth, 1995. "Global versus country-specific productivity shocks and the current account," Journal of Monetary Economics, Elsevier, vol. 35(1), pages 159-192, February.
    2. Arthur Grimes, 1990. "The theoretical basis for monetary policy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 53, june.
    3. Gian Maria Milesi-Ferretti & Assaf Razin, 1996. "Sustainability of Persistent Current Account Deficits," NBER Working Papers 5467, National Bureau of Economic Research, Inc.
    4. Hans Genberg & Alexander K. Swoboda, 1989. "Policy and Current Account Determination under Floating Exchange Rates," IMF Staff Papers, Palgrave Macmillan, vol. 36(1), pages 1-30, March.
    5. Arthur Grimes & Jason Wong, 1992. "The role of the exchange rate in New Zealand monetary policy," Proceedings, Federal Reserve Bank of San Francisco, pages 176-197.
    6. Daniel Cohen, 1998. "The Sustainability of African Debt," International Economic Association Series, in: Daniel Cohen (ed.), Contemporary Economic Issues, chapter 7, pages 160-181, Palgrave Macmillan.
    7. Brunner, Karl & Cukierman, Alex & Meltzer, Allan H., 1983. "Money and economic activity, inventories and business cycles," Journal of Monetary Economics, Elsevier, vol. 11(3), pages 281-319.
    8. Frenkel, Jacob A. & Mussa, Michael L., 1985. "Asset markets, exchange rates and the balance of payments," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 14, pages 679-747, Elsevier.
    9. Eric Hansen & Dimitri Margaritis, 1993. "Financial Liberalisation and Monetary Policy in New Zealand," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 26(4), pages 28-36, October.
    10. Gertler, Mark & Rogoff, Kenneth, 1990. "North-South lending and endogenous domestic capital market inefficiencies," Journal of Monetary Economics, Elsevier, vol. 26(2), pages 245-266, October.
    11. Milesi-Ferretti, G-M & Razin, A, 1996. "Current-Account Sustainability," Princeton Studies in International Economics 81, International Economics Section, Departement of Economics Princeton University,.
    12. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
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    Cited by:

    1. Plasmans, J.E.J., 2001. "The Effects of Fiscal and Monetary Policy in an Open Economy : A Case of EU, the USA and Japan," Other publications TiSEM 26fda6a3-5cc0-43a3-894a-d, Tilburg University, School of Economics and Management.
    2. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
    3. Sean Collins & Francisco Nadal De Simone & David Hargreaves, 1998. "The current account balance: an analysis of the issues," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 61, March.
    4. Francisco de A. Nadal-De Simone, 2001. "Inflation targeting in a small open economy: The behaviour of price variables," New Zealand Economic Papers, Taylor & Francis Journals, vol. 35(1), pages 101-142.

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    More about this item

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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