Monetary Policy and Exchange Rate Regime: Proposal for a Small and Less Developed Economy
AbstractWe investigate monetary policy under the assumption that a country’s capital market is “open” under the WTO framework while the exchange rate is fixed. Our purpose is to determine if it is possible in this case for the economy to maintain an effective monetary policy for stabilizing the domestic economy. For this, we suggest two institutional restrictions. Given the restrictions, we demonstrate within a macro-dynamic model that monetary policy can still be effective. The implication of such an institutional design for an exchange rate regime is also discussed with special reference to small and less development economies.
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Bibliographic InfoPaper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 199.
Date of creation: 01 Jul 2007
Date of revision:
open economy trilemma; macroeconomic stability; exchange rate regime;
Find related papers by JEL classification:
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-02 (All new papers)
- NEP-CBA-2007-09-02 (Central Banking)
- NEP-MAC-2007-09-02 (Macroeconomics)
- NEP-MON-2007-09-02 (Monetary Economics)
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