Monetary Policy and International Competitiveness
A model of Dornbusch is adapted to analyze the consequences for output and competitiveness of certain aspects of the U.K. government's medium term financial strategy and some other policy actions. This includes the announcement of a sequence of reductions in the target rate of monetary growth, an increase in VAT and a move to make the U.K. banking system more competitive. The impact of a discovery of domestic oil is also modeled. We consider the consequences of varying the degree of inertia in the underlying rate of inflation and of different rates of international capital mobility. A real interest rate equalization tax stabilizes the real exchange rate but not the level of output. Once and for all changes in the level of the nominal money stock to accommodate changes in the demand for real money balances prevent 'overshooting' of the real exchange rate and fluctuations in output. It may, however, undermine the credibility of an announced policy of monetary disinflation.
|Date of creation:||Dec 1980|
|Date of revision:|
|Publication status:||published as Buiter, Willem H. and Miller, Marcus H. "Monetary Policy and Internationalmpetitiveness: The Problems of Adjustment." Oxford Economic Papers, Vol. 33 , (July 1981, Supplement), pp. 143-175.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- P J Forsyth & J A Kay, 1980. "The economic implications of North Sea Oil Revenues," Fiscal Studies, Institute for Fiscal Studies, vol. 1(3), pages 1-28, July.
- Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
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- Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 1-32, January.
- Buiter, William H & Purvis, Douglas D, 1980.
"Oil, Disinflation, and Export Competitiveness : A Model of the "Dutch Disease","
The Warwick Economics Research Paper Series (TWERPS)
185, University of Warwick, Department of Economics.
- Willem H. Buiter & Douglas D. Purvis, 1980. "Oil, Disinflation, and Export Competitiveness: A Model of the "Dutch Disease"," NBER Working Papers 0592, National Bureau of Economic Research, Inc.
- Robert P. Flood & Nancy Peregrim Marion, 1982. "The Transmission of Disturbances under Alternative Exchange-Rate Regimes with Optimal Indexing," The Quarterly Journal of Economics, Oxford University Press, vol. 97(1), pages 43-66.
- Liviatan, Nissan, 1980. "Anti-Inflationary Monetary Policy and the Capital Import Tax," The Warwick Economics Research Paper Series (TWERPS) 171, University of Warwick, Department of Economics.
- Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
- Robert P. Flood & Nancy Peregrim Marion, 1980. "The Transmission of Disturbances under Alternative Exchange-Rate Regimeswith Optimal Indexing," NBER Working Papers 0500, National Bureau of Economic Research, Inc.
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