Monetary policy in an equilibrium portfolio balance model, Issues 2007-2072

Front Cover
Standard theory shows that sterilized foreign exchange interventions do not affect equilibrium prices and quantities, and that domestic and foreign currency denominated bonds are perfect substitutes. This paper shows that when fiscal policy is not sufficiently flexible in response to spending shocks, perfect substitutability breaks down and uncovered interest rate parity no longer holds. Government balance sheet operations can be used as an independent policy instrument to target interest rates. Sterilized foreign exchange interventions should be most effective in developing countries, where fiscal volatility is large and where the fraction of domestic currency denominated government liabilities is small.

From inside the book

What people are saying - Write a review

We haven't found any reviews in the usual places.

Contents

Introduction
3
Policy Implications
17
Conclusion
23
Copyright

Other editions - View all

Common terms and phrases

Bibliographic information