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Monetary Policy in a Small Open Economy with Marshallian Preferences

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  • CONSTANTINE ANGYRIDIS
  • ARMAN MANSOORIAN

Abstract

We study the effects of inflation for a small open economy when the representative agent has Marshallian preferences, with which the rate of time preference is a decreasing function of savings. An increase in the inflation rate reduces the permanent income of the representative agent, which, with Marshallian preferences, also reduces the rate of time preference. Hence, savings falls and the country runs a current account deficit. The numerical evaluations of the model suggest that inflation has significant effects on welfare in the steady state.

Suggested Citation

  • Constantine Angyridis & Arman Mansoorian, 2009. "Monetary Policy in a Small Open Economy with Marshallian Preferences," The Economic Record, The Economic Society of Australia, vol. 85(268), pages 21-31, March.
    • Handle: RePEc:bla:ecorec:v:85:y:2009:i:268:p:21-31
    DOI: 10.1111/j.1475-4932.2008.00526.x
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    References listed on IDEAS

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