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The Employment, Investment and Current Account Effects of Exchange Rate Policies in a Cash-in-Advance Economy

Author

Listed:
  • Arman Mansoorian

    (York University, Canada)

  • Mohammed Mohsin

    (University of Tennessee, USA)

Abstract

The effects of exchange rate policies are examined for a small open economy in an infinite horizon model with investment, labor/leisure choice, and cash-in-advance for consumption. An increase in the rate of depreciation of the domestic currency reduces consumption and labor supply, as the higher inflation increases the price of consumption relative to leisure. The fall in labor reduces the marginal productivity of capital, and a fall in investment. The country runs a current account surplus, despite the fall in output. The dynamics of the model for permanent, temporary and anticipated policy changes are fully worked out.

Suggested Citation

  • Arman Mansoorian & Mohammed Mohsin, 2002. "The Employment, Investment and Current Account Effects of Exchange Rate Policies in a Cash-in-Advance Economy," Working Papers 2002_04, York University, Department of Economics.
  • Handle: RePEc:yca:wpaper:2002_04
    as

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    File URL: http://dept.econ.yorku.ca/research/workingPapers/working_papers/paper-3.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Employment; Investment; Current Account; Cash-in-Advance;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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