Financial Liberalization and Inflationary Dynamics in the Context of a Small Open Economy
AbstractThe paper develops a short-run model of a small open financially repressed economy characterized by unorganized money markets, intermediate good imports, capital mobility and flexible exchange rates. The analysis shows that financial liberalization, in the form of increased rate of interest on deposits and tight monetary policy causes deflation for an economy with high degree of capital mobility. However, for economies with low degree of capital mobility, the possibility of stagflation cannot be ruled out. The paper recommends financial liberalization in the form of lower reserve requirements for economies with restricted transactions in the capital account.
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Bibliographic InfoPaper provided by University of Pretoria, Department of Economics in its series Working Papers with number 200506.
Length: 25 pages
Date of creation: Oct 2005
Date of revision:
Financial Liberalization; Inflation; Small open economy;
Other versions of this item:
- Rangan Gupta, 2005. "Financial Liberalization and Inflationary Dynamics in the Context of a Small Open Economy," Working papers 2005-39, University of Connecticut, Department of Economics.
- 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
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.:
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"Exchange rate management and stabilization policies in developing countries,"
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Elsevier, vol. 23(2), pages 227-247, October.
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