Capital Mobility, Consumption Substitutability and the Effects of Monetary Policy in Open Economies

2005 ◽  
Vol 6 (1) ◽  
pp. 79-94 ◽  
Author(s):  
Christian Pierdzioch
Keyword(s):  
Monetary Policy ◽  
General Equilibrium ◽  
Open Economy ◽  
Capital Mobility ◽  
International Capital ◽  
International Capital Mobility ◽  
Short Run ◽  
Cross Country ◽  
Optimizing Model ◽  
The Impact

Abstract I use a dynamic general equilibrium two-country optimizing model to analyze the implications of international capital mobility for the short-run effects of monetary policy in an open economy. The model implies that the substitutability of goods produced in different countries plays a central role for the impact of changes in the degree of international capital mobility on the effects of monetary policy. Paralleling the results of the traditional Mundell-Fleming model, a higher degree of international capital mobility magnifies the short-run output effects of monetary policy only if the Marshall-Lerner condition, which is linked to the cross-country substitutability of goods, holds.

Interest rate rules and equilibrium (in)determinacy in a small open economy: the role of internationally traded capital

2018 ◽  
Vol 18 (2) ◽  
Author(s):  
Wen-ya Chang ◽  
Hsueh-fang Tsai ◽  
Juin-jen Chang ◽  
Hsieh-yu Lin
Keyword(s):  
Interest Rate ◽  
Open Economy ◽  
Capital Mobility ◽  
Small Open Economy ◽  
International Capital ◽  
Interest Rate Rules ◽  
International Capital Mobility ◽  
Rate Feedback ◽  
Feedback Rule

Abstract This study develops a small-open-economy version of Benhabib, J., S. Schmitt-Grohé, and M. Uribe. 2001. “Monetary Policy and Multiple Equilibria.” American Economic Review 91: 167–186. We systematically explore the role of international capital mobility and the portfolio balance channel in terms of macroeconomic (in)stability when the government follows a commonly-adopted interest-rate feedback rule. In a one-traded-good model, the steady-state equilibrium, in general, is locally determinate; international capital mobility stabilizes the economy against business cycle fluctuations under a simple interest-rate feedback rule. In a two-good (traded and non-traded goods) model, the relationship between equilibrium (in)determinacy and the aggressiveness of interest rate rules is not monotonic, and crucially depends on households’ portfolio preferences. These results suggest that a unified interest rate rule can end up with very different consequences of macroeconomic (in)stability in an open economy from those in a closed economy.

scholarly journals Quelques aspects de la transmission internationale de l’inflation

2009 ◽  
Vol 54 (2) ◽  
pp. 147-175
Author(s):  
Yves Rabeau
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Price Level ◽  
Small Country ◽  
Large Country ◽  
Short Run ◽  
International Demand ◽  
Dynamic Version ◽  
The Impact ◽  
The U.S

In the first section, the impact of a shift in international demand on the price level of a small and open economy is analysed in the framework of the IS and LM diagram and under the assumption of a fixed exchange rate; only short run implications are derived from the analysis. In this keynesian context, it is shown, in particular, that the monetary policy implemented by a large country like the U.S. plays an important role in the assessment of the static short run impact of a change in international demand on the price level of a small country like Canada. In the second section of the paper, it is shown that a dynamic version of a keynesian macro model allows the rate of growth of prices of a small country to converge to the "international rate of inflation". In the last section, longer term issues are discussed in the context of the Scandinavian model of inflation. In particular, it is shown that a country like Canada with large regulated and para-public sectors is quite vulnerable to external inflationary shocks.

International capital mobility and structural transformation

2018 ◽  
Vol 19 (1) ◽  
Author(s):  
Kyungsoo Kim ◽  
Wankeun Oh ◽  
E. Young Song
Keyword(s):  
Interest Rate ◽  
Structural Transformation ◽  
Open Economy ◽  
Capital Mobility ◽  
Technological Progress ◽  
Structural Changes ◽  
Small Open Economy ◽  
Value Added ◽  
International Capital ◽  
International Capital Mobility

Abstract This study examines the role of international capital mobility in shaping the relation between economic growth and structural transformation. We build a small open economy Ramsey model with two goods, tradables and nontradables. We show that if the long-run autarky interest rate of a small open economy is higher than the world interest rate, the employment and value-added shares of the tradables sector will rise over time. In the opposite case, the shares will fall. Because the autarky interest rate increases with the rate of technological progress, our result suggests that cross-country differences in the rate of technological progress may be a significant factor in accounting for diverse patterns of structural changes among countries.

FRAGMENTATION, SKILL FORMATION AND INTERNATIONAL CAPITAL MOBILITY

2017 ◽  
Vol 65 (02) ◽  
pp. 335-350
Author(s):  
SUDESHNA MITRA ◽  
KAUSIK GUPTA
Keyword(s):  
Wage Inequality ◽  
Capital Mobility ◽  
Regime Change ◽  
International Capital ◽  
Skill Formation ◽  
International Capital Mobility ◽  
Production Processes ◽  
Fragmentation Of Production ◽  
The Impact ◽  
Production Fragmentation

During the last few decades an important feature of the on-going process of globalization is production fragmentation. Owing to the growing importance of international fragmentation of production processes the composition of international trade has indeed altered in recent years. Here we want to focus on production fragmentation which actually implies that the requirement for the intermediate goods can be met by producing it domestically or it can be imported from abroad. In this paper we want to examine the probable causes for a developing economy to switchover from a regime of no fragmentation to fragmentation. Here the impact of such a regime change has also been examined on wage inequality as well as on the incidence of skill formation within the economy. Moreover, we have examined here the impact of perfect international capital mobility on the economy in the context of regime change between fragmentation and no fragmentation.

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