Do Fixed Exchange Rates Fetter Monetary Policy? A Credit View
The Bernanke-Blinder credit-view model is expanded to encompass a small, open economy with fixed exchange rates. In contrast to conventional wisdom and traditional models, monetary policy is resurrected as a stabilization tool. Further, various financial sector shocks are shown to have real aggregate demand effects. We show that independent monetary policy actions can have substantive impacts on aggregate demand despite perfect capital mobility and adherence to a fixed exchange rate regime.
|Date of creation:||2003|
|Date of revision:|
|Publication status:||Published in Eastern Economic Journal, Vol. 33, No.2, Spring, 2007.|
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