Short-Term and Long-Term Interest Rates in a Monetary Model of a Small Open Economy
This paper analyzes the effects of both anticipated and unanticipated monetary and fiscal disturbances, on the dynamic behavior of a monetary model of a small open economy. It focuses on the adjustment of the short-term and long-term interest rates and the divergence of their transitional paths, particularly in anticipation of these disturbances. The analysis demonstrates how anticipation of a future policy change can generate perverse short-run behavior. The essential reason for the divergence between the short and long rates is that the latter is dominated by long-term expectations, while the former is primarily determined by current influences.
|Date of creation:||Oct 1985|
|Date of revision:|
|Publication status:||published as Turnovsky, Stephen J. "Short-Term and Long-Term Interest Rates in a Monetary Model of a Small Open Economy," Journal of International Economics, Vol. 20, No. 3/4. May 1986, pp. 291-311.|
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- Gray, Malcolm R & Turnovsky, Stephen J, 1979. "The Stability of Exchange Rate Dynamics under Perfect Myopic Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(3), pages 643-60, October.
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NBER Working Papers
1265, National Bureau of Economic Research, Inc.
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- Blanchard, Olivier J, 1981. "Output, the Stock Market, and Interest Rates," American Economic Review, American Economic Association, vol. 71(1), pages 132-43, March.
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- Dornbusch, Rudiger, 1976. "Exchange rate expectations and monetary policy," Journal of International Economics, Elsevier, vol. 6(3), pages 231-244, August.
- Turnovsky, Stephen J & Miller, Marcus H, 1984. "The Effects of Government Expenditure on the Term Structure of Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(1), pages 16-33, February.
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