All Rights Reserved
AccessEcon LLC 2006, 2008.
Powered by MinhViet JSC
ralph lauren polo

 
Kevin x.d. Huang, Qinglai Meng and Jianpo Xue
 
''Money growth targeting and indeterminacy in small open economies''
 
 
In a closed economy setting a cash-in-advance monetary economy under money growth targeting is prone to self-fulfilling expectations and beliefs-driven fluctuations. This paper shows that such extrinsic instability is less of a problem in a small open economy integrated in the world goods and financial markets. This is because endogenous terms-of-trade movements associated with global goods trade and cross-border capital flows and endogenous international asset price adjustments associated with global financial transaction serve as an endogenous stabilizer to reduce the likelihood of sunspot equilibria. We find that for empirically reasonable parametrization of the small open economy sunspot beliefs are unlikely to become self-fulfilled.
 
 
Keywords: self-fulfilling expectations; indeterminacy; saddle-path stability; money growth targeting; small open economy
JEL: E3 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
F4 - Macroeconomic Aspects of International Trade and Finance: General
 
Manuscript Received : May 18 2018 Manuscript Accepted : May 19 2018

  This abstract has been downloaded 176 times                The Full PDF of this paper has been downloaded 107680 times