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On the Effects of Inflation Shocks in a Small Open Economy

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  • Sushanta K. Mallick
  • Mohammed Mohsin

Abstract

"The effects of monetary policies remain always an important topic in macroeconomics. In the literature (closed and open economy), there is no theoretical as well as empirical consensus regarding the effects of monetary policies. In this paper we examine the real effects of inflation in an open economy. Australia is a classic example of a small open economy and is known to exercise inflation targeting. Using quarterly data from Australia and employing vector autoregressive (VAR) analysis, we provide evidence that inflation, both in the short and long run, negatively affects durable and non-durable consumption and investment, and has a positive effect on the current account. Further, we show that consumption of durable goods is more sensitive than the consumption of non-durables during the initial periods following inflationary shocks." Copyright 2007 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research.

Suggested Citation

  • Sushanta K. Mallick & Mohammed Mohsin, 2007. "On the Effects of Inflation Shocks in a Small Open Economy," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 40(3), pages 253-266, September.
  • Handle: RePEc:bla:ausecr:v:40:y:2007:i:3:p:253-266
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    Cited by:

    1. repec:spr:qualqt:v:51:y:2017:i:3:d:10.1007_s11135-016-0341-2 is not listed on IDEAS
    2. Mansor Ibrahim, 2010. "Money-price relation in Malaysia: has it disappeared or strengthened?," Economic Change and Restructuring, Springer, vol. 43(4), pages 303-322, November.
    3. Ricardo M. Sousa, 2010. "Collateralizable Wealth, Asset Returns, and Systemic Risk: International Evidence," NIPE Working Papers 15/2010, NIPE - Universidade do Minho.
    4. Xu, Yingying & Chang, Hsu-Ling & LobonĊ£, Oana-Ramona & Su, Chi-Wei, 2016. "Modeling heterogeneous inflation expectations: empirical evidence from demographic data?," Economic Modelling, Elsevier, vol. 57(C), pages 153-163.

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