IDEAS home Printed from https://ideas.repec.org/p/uma/periwp/wp202.html
   My bibliography  Save this paper

The Effectiveness of Monetary Policy Reconsidered

Author

Listed:
  • John Weeks

Abstract

In this PERI Working Paper, John Weeks inspects the standard policy rule that under a flexible exchange rate regime with perfectly elastic capital flows, monetary policy is effective, and fiscal policy is not. The logical validity of the statement requires that the effect of an exchange rate change on the domestic price level be ignored. The price level effect is noted in some textbooks, but not formally analyzed. When it is subjected to a rigorous analysis, the interaction between changes in the exchange rate and the domestic price level significantly alters the standard policy rule. According to Weeks, the more accurate statement would be: under a flexible exchange rate regime with perfectly elastic capital flows the effectiveness of monetary policy depends on the values of the import share and the sum of the trade elasticities. Inspection of data from developing countries indicates the effectiveness of monetary policy under flexible exchange rates can be quite low, even if capital flows are perfectly elastic.

Suggested Citation

  • John Weeks, 2009. "The Effectiveness of Monetary Policy Reconsidered," Working Papers wp202, Political Economy Research Institute, University of Massachusetts at Amherst.
    • Handle: RePEc:uma:periwp:wp202
    as

    Download full text from publisher

    File URL: https://per.umass.edu/fileadmin/pdf/working_papers/working_papers_201-250/WP202.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Anwar Shaikh, 1999. "Real Exchange Rates and the International Mobility of Capital," Macroeconomics 9904002, University Library of Munich, Germany.
    2. Warren Young & William Darity, Jr., 2004. "IS-LM-BP: An Inquest," History of Political Economy, Duke University Press, vol. 36(5), pages 127-164, Supplemen.
    3. World Bank, 2006. "World Development Indicators 2006," World Bank Publications - Books, The World Bank Group, number 8151, December.
    4. Anonymous, 1962. "International Monetary Fund," International Organization, Cambridge University Press, vol. 16(1), pages 230-231, January.
    5. Anonymous, 1963. "International Monetary Fund," International Organization, Cambridge University Press, vol. 17(1), pages 281-282, January.
    6. Anonymous, 1962. "International Monetary Fund," International Organization, Cambridge University Press, vol. 16(4), pages 876-878, October.
    7. John Weeks, 1989. "A Critique of Neoclassical Macroeconomics," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-20296-6.
    8. Anonymous, 1949. "International Monetary Fund," International Organization, Cambridge University Press, vol. 3(3), pages 536-538, August.
    9. Anonymous, 1949. "International Monetary Fund," International Organization, Cambridge University Press, vol. 3(4), pages 714-717, November.
    10. Anonymous, 1963. "International Monetary Fund," International Organization, Cambridge University Press, vol. 17(2), pages 500-504, April.
    11. Anonymous, 1949. "International Monetary Fund," International Organization, Cambridge University Press, vol. 3(2), pages 349-350, May.
    12. Anonymous, 1963. "International Monetary Fund," International Organization, Cambridge University Press, vol. 17(4), pages 976-977, October.
    13. Willett, Thomas D. & Keil, Manfred W. & Ahn, Young Seok, 2002. "Capital mobility for developing countries may not be so high," Journal of Development Economics, Elsevier, vol. 68(2), pages 421-434, August.
    14. Anonymous, 1962. "International Monetary Fund," International Organization, Cambridge University Press, vol. 16(3), pages 619-631, July.
    15. Anonymous, 1949. "International Monetary Fund," International Organization, Cambridge University Press, vol. 3(1), pages 154-156, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. HSING, Yu, 2021. "Are The Predictions Of The Mundell-Fleming Model Applicable To Argentina?," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 21(1), pages 37-48.
    2. Robert Prasch, 2001. "The Economic Contributions of Robert A. Mundell," Review of Political Economy, Taylor & Francis Journals, vol. 13(1), pages 41-58.
    3. Wolfe, Marshall, 2016. "Approaches To Development: Who Is Approaching What?," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 43919.
    4. Fajnzylber, Fernando, 2016. "Industrialization In Latin America: From The “Blackbox” To The “Empty Box”," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 43922.
    5. Andrejovská Alena & Mihóková Lucia & Martinková Slavomíra, 2017. "Meta-analysis categorization of EU countries in the context of corporate income tax," Contaduría y Administración, Accounting and Management, vol. 62(3), pages 1001-1018, Julio-Sep.
    6. Sunkel, Osvaldo, 2016. "Transnational Capitalism And National Disintegration In Latin America," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 43914.
    7. -, 2016. "Economic Survey Of Latin America 1949," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 43903.
    8. -, 2016. "The Quito Appraisal," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 43917.
    9. Dennis P. Quinn & Hans-Joachim Voth, 2008. "A Century of Global Equity Market Correlations," American Economic Review, American Economic Association, vol. 98(2), pages 535-540, May.
    10. -, 2016. "ECLAC Thinking, Selected Texts (1948-1998)," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 40881 edited by Eclac.
    11. Medina Echavarría, José, 2016. "Economic Development In Latin America Sociological Considerations," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 43912.
    12. László Kónya, 2015. "Saving and investment rates in the BRICS countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 24(3), pages 429-449, April.
    13. Graciarena, Jorge, 2016. "Power And Development Styles," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 43918.
    14. Obstfeld, Maurice, 1986. "Capital mobility in the world economy: Theory and measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 24(1), pages 55-103, January.
    15. Noyola Vázquez, Juan F., 2016. "Inflation And Economic Development In Chile And Mexico," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 43908.
    16. Sunkel, Osvaldo, 2016. "Inflation In Chile: An Unorthodox Approach," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 43909.
    17. -, 2016. "The Latin American Common Market," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 43910.
    18. Pinto Santa Cruz, Aníbal, 2016. "Styles Of Development In Latin America," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 43916.
    19. -, 2016. "Adjustment Policies And Renegotiation Of The External Debt In Latin America," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 43920.
    20. -, 2016. "Changing Production Patterns with Social Equity: the Prime Task of Latin American and Caribbean development in the 1990s," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 43923.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uma:periwp:wp202. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Judy Fogg (email available below). General contact details of provider: https://edirc.repec.org/data/permaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.