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Monetary policy in high inflation open economies: evidence from Israel and Turkey

  • Sushanta K. Mallick

    (School of Business and Management, Queen Mary, University of London, Mile End Road, London E1 4NS, UK)

  • Mohammed Mohsin

    (Department of Economics, University of Tennessee, 514 Stokely Management Center, Knoxville, TN 37996, USA)

With quarterly data from Israel and Turkey we estimate generalized impulse response functions to show that inflation has no long-run real effects on consumption, investment and the current account balance. The findings are robust even after allowing for inflation volatility obtained through GARCH estimates. We develop an inter-temporal optimizing model of a small open economy with a fixed rate of time preference that supports the empirics. Our model, thus, extends the super-neutrality results (� la Sidrausky) in an open economy paradigm. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.324
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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 12 (2007)
Issue (Month): 4 ()
Pages: 405-415

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Handle: RePEc:ijf:ijfiec:v:12:y:2007:i:4:p:405-415
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  1. Christopher A. Sims & Tao Zha, 1994. "Error Bands for Impulse Responses," Cowles Foundation Discussion Papers 1085, Cowles Foundation for Research in Economics, Yale University.
  2. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
  3. Frederic S. Mishkin, 2000. "Inflation Targeting in Emerging Market Countries," NBER Working Papers 7618, National Bureau of Economic Research, Inc.
  4. Wayne E. Ferson & George M. Constantinides, 1991. "Habit Persistence and Durability in Aggregate Consumption: Empirical Tests," NBER Working Papers 3631, National Bureau of Economic Research, Inc.
  5. Obstfeld, Maurice, 1981. "Capital Mobility and Devaluation in an Optimizing Model with Rational Expectations," American Economic Review, American Economic Association, vol. 71(2), pages 217-21, May.
  6. Abel, Andrew B., 1985. "Dynamic behavior of capital accumulation in a cash-in-advance model," Journal of Monetary Economics, Elsevier, vol. 16(1), pages 55-71, July.
  7. Djajic, Slobodan, 1982. "Balance-of-payments dynamics and exchange-rate management," Journal of International Money and Finance, Elsevier, vol. 1(1), pages 179-191, January.
  8. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
  9. Heaton, John, 1995. "An Empirical Investigation of Asset Pricing with Temporally Dependent Preference Specifications," Econometrica, Econometric Society, vol. 63(3), pages 681-717, May.
  10. Calvo, Guillermo A., 1981. "Devaluation: Levels versus rates," Journal of International Economics, Elsevier, vol. 11(2), pages 165-172, May.
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