SOAS Research Online

A Free Database of the Latest Research by SOAS Academics and PhD Students

[skip to content]

Weeks, John (2008) The Effectiveness of Monetary Policy Reconsidered. Brasilia: International Poverty Centre, Technical Paper 3.

[img]
Preview
Text - Published Version
Download (268kB) | Preview

Abstract

This paper 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. The logically correct 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.

Item Type: Monographs and Working Papers (Discussion Paper)
SOAS Departments & Centres: Legacy Departments > Faculty of Law and Social Sciences > Department of Development Studies
Date Deposited: 23 Feb 2009 14:51
URI: https://eprints.soas.ac.uk/id/eprint/6522

Altmetric Data

There is no Altmetric data currently associated with this item.

Statistics

Download activity - last 12 months
Downloads since deposit
25Downloads
1,086Hits
Accesses by country - last 12 months
Accesses by referrer - last 12 months

Repository staff only

Edit Item Edit Item