Capital Mobility, Consumption Substitutability and the Effects of Monetary Policy in Open Economies
I use a dynamic general equilibrium two-country optimizing model to analyze the implications of international capital mobility for the short-run effects of monetary policy in an open economy. The model implies that the substitutability of goods produced in different countries plays a central role for the impact of changes in the degree of international capital mobility on the effects of monetary policy. Paralleling the results of the traditional Mundell-Fleming model, a higher degree of international capital mobility magnifies the short-run output effects of monetary policy only if the Marshall-Lerner condition, which is linked to the cross-country substitutability of goods, holds. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2005.
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Volume (Year): 6 (2005)
Issue (Month): 1 (02)
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