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Monetary Policy and Investment Dynamics in Interdependent Economies

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  • Niehans, Jurg

Abstract

A dynamic two-country model is used to determine the adjustment pat hs of prices, interest rates, exchange rates, and capital flows aftera change i n monetary policy. The principal controlling factor is thereaction of investmen t to capital goods prices (Tobin's q). Monetaryexpansion in one country produces deflationary pressure abroad. There is an instant decline in the world interest rate followed by a gradual rise. Exchange rates may overshoot or undershoot their steady-state level. The same applies to capital flows, but there is no correspondence between the paths of exchange rates and capital flows. Copyright 1987 by Ohio State University Press.

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  • Niehans, Jurg, 1987. "Monetary Policy and Investment Dynamics in Interdependent Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(1), pages 33-45, February.
    • Handle: RePEc:mcb:jmoncb:v:19:y:1987:i:1:p:33-45
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    Cited by:

    1. McNelis, Paul D. & Asilis, Carlos M., 2002. "Macroeconomic policy games and asset-price volatility in the EMS: a linear quadratic control analysis of France, Germany, Italy and Spain," Economic Modelling, Elsevier, vol. 19(1), pages 1-24, January.

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