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.
    4. 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.
    5. John Weeks, 1989. "A Critique of Neoclassical Macroeconomics," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-20296-6, July.
    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. Nasreen, Samia & Anwar, Sofia & Ozturk, Ilhan, 2017. "Financial stability, energy consumption and environmental quality: Evidence from South Asian economies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 67(C), pages 1105-1122.
    2. Russell S. Sobel & Nabamita Dutta & Sanjukta Roy, 2010. "Beyond Borders: Is Media Freedom Contagious?," Kyklos, Wiley Blackwell, vol. 63(1), pages 133-143, February.
    3. Aleksynska, Mariya & Tritah, Ahmed, 2013. "Occupation–education mismatch of immigrant workers in Europe: Context and policies," Economics of Education Review, Elsevier, vol. 36(C), pages 229-244.
    4. Isis Gaddis & Stephan Klasen, 2014. "Economic development, structural change, and women’s labor force participation:," Journal of Population Economics, Springer;European Society for Population Economics, vol. 27(3), pages 639-681, July.
    5. Bourdon, Jean & Frölich, Markus & Michaelowa, Katharina, 2007. "Teacher Shortages, Teacher Contracts and their Impact on Education in Africa," IZA Discussion Papers 2844, Institute of Labor Economics (IZA).
    6. Abdulqadir, Idris A. & Asongu, Simplice A., 2022. "The asymmetric effect of internet access on economic growth in sub-Saharan Africa," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 44-61.
    7. Lefèvre, Nicolas, 2010. "Measuring the energy security implications of fossil fuel resource concentration," Energy Policy, Elsevier, vol. 38(4), pages 1635-1644, April.
    8. Aneel Karnani, 2009. "The Bottom of the Pyramid Strategy for Reducing Poverty: A Failed Promise," Working Papers 80, United Nations, Department of Economics and Social Affairs.
    9. António Afonso & João Tovar Jalles & Ana Venâncio, 2021. "Structural Tax Reforms and Public Spending Efficiency," Open Economies Review, Springer, vol. 32(5), pages 1017-1061, November.
    10. Gonzalez-Martinez, Ana Citlalic & Schandl, Heinz, 2008. "The biophysical perspective of a middle income economy: Material flows in Mexico," Ecological Economics, Elsevier, vol. 68(1-2), pages 317-327, December.
    11. Goulven Rubin, 2004. "Patinkin on IS-LM: An Alternative to Modigliani," History of Political Economy, Duke University Press, vol. 36(5), pages 190-216, Supplemen.
    12. Klomp, Jeroen & de Haan, Jakob, 2010. "Do central bank law reforms affect the term in office of central bank governors?," Economics Letters, Elsevier, vol. 106(3), pages 219-222, March.
    13. Jamshed Uppal, 2021. "Developing Housing Finance in Pakistan – Challenges and Opportunities," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 26(1), pages 31-56, Jan-June.
    14. Poelhekke, Steven, 2011. "Urban growth and uninsured rural risk: Booming towns in bust times," Journal of Development Economics, Elsevier, vol. 96(2), pages 461-475, November.
    15. Maksim Yemelyanau, 2008. "Inequality in Belarus from 1995 to 2005," CERGE-EI Working Papers wp356, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    16. Jacobo Ferrer & Adrián Martínez-González & Luis Daniel Torres-González, 2024. "On the Role of Profits-Wages Ratios in the Determination of the Long-Run Behavior of International Relative Prices," Centro Sraffa Working Papers CSWP67, Centro di Ricerche e Documentazione "Piero Sraffa".
    17. Tyrrall, David & Woodward, David & Rakhimbekova, Almagoul, 2007. "The relevance of International Financial Reporting Standards to a developing country: Evidence from Kazakhstan," The International Journal of Accounting, Elsevier, vol. 42(1), pages 82-110.
    18. Alberto Felettigh & Paola Monti, 2008. "How to interpret the CPIS data on the distribution of foreign portfolio assets in the presence of sizeable cross-border positions in mutual funds. Evidence for Italy and the main euro-area countries," Questioni di Economia e Finanza (Occasional Papers) 16, Bank of Italy, Economic Research and International Relations Area.
    19. Sudip Ranjan Basu, 2008. "Does WTO accession affect domestic economic policies and institutions?," IHEID Working Papers 03-2008, Economics Section, The Graduate Institute of International Studies, revised Feb 2008.
    20. Lora, Eduardo, 2005. "Should Latin America Fear China?," IDB Publications (Working Papers) 4367, Inter-American Development Bank.

    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 The email address of this maintainer does not seem to be valid anymore. Please ask Judy Fogg to update the entry or send us the correct address (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.