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Openness and interest rates: An analysis using the MIUF model and transaction cost model of money

  • Takamatsu, Satoko
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    This paper discusses the manner in which the difference in the specification, which generates a demand for money by agents, alters the optimal interest rate in open economies by taking into account that the prices reflect the producers' optimization. In acanonical money-in-the-utility function (MIUF) model, the Friedman rule is optimal. On the other hand, in the transaction cost model, the optimal interest rate is positive and increases, in terms of the share of imports in consumption.

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    File URL: http://www.sciencedirect.com/science/article/B6W4V-4WGVPXY-1/2/f3e560feb9cc465005778988ff35b045
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    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 19 (2010)
    Issue (Month): 2 (April)
    Pages: 295-303

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    Handle: RePEc:eee:reveco:v:19:y:2010:i:2:p:295-303
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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