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Real asset returns, inflation and activity in a small, open, Cash-in-Advance economy

  • Mansoorian, Arman
  • Mohsin, Mohammed

The effects of inflation are worked out for a small open economy with Cash-in-Advance (CIA) constraints on bond purchases. If all transactions are subject to CIA constraints, an increase in the inflation rate will reduce savings, bringing about a current account deficit, while the capital stock will be unaffected. If investment is not subject to CIA constraints, an increase in the inflation rate will encourage investment and reduce savings, bringing about a current account deficit. Numerical evaluation of the model gives rise to falls in real interest rates that are in line with recent empirical findings.

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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 32 (2013)
Issue (Month): C ()
Pages: 234-250

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Handle: RePEc:eee:jimfin:v:32:y:2013:i:c:p:234-250
DOI: 10.1016/j.jimonfin.2012.04.014
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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