Financial Liberalization and the Dynamics of Inflation, the Nominal Exchange Rate and the Terms of Trade
AbstractThe paper develops a short-run structural model of a small open financially repressed economy with current account convertibility. The analysis shows that the effect of financial liberalization on rate of inflation and the movements of the nominal exchange rate proves ambiguous, and hinges critically on the relative responsiveness of the credit-induced effects on aggregate demand and aggregate supply. This result provides a theoretical explanation to the widely available empirical evidence, indicating such an ambiguity.
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Bibliographic InfoPaper provided by University of Pretoria, Department of Economics in its series Working Papers with number 200504.
Length: 18 pages
Date of creation: Sep 2005
Date of revision:
Financial Liberalization; Inflation; Exchange rate and terms of trade dynamics; Small open economy;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- 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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