Skip to main content
Current account and exchange rate dynamics
Economic Notes (2001)
  • Lilia Cavallari, University of Rome III
The theoretical part of this paper analyses the positive and normative effects of a surprise monetary expansion in a small open economy characterized by imperfect competition and short-run price rigidity in the domestic sector. The temporary output boom fostered by the monetary expansion is shown to come at the cost of a permanent squeeze of the domestic sector. This affects welfare ambiguously, as the overall welfare consequences of the monetary expansion may eventually turn negative for a critical value of external assets. The empirical part of the paper provides evidence in favour of a key role of monetary shocks in driving current account fluctuations in seven major industrialized countries.
Publication Date
February, 2001
Citation Information
Lilia Cavallari. "Current account and exchange rate dynamics" Economic Notes Vol. 1 Iss. 1 (2001)
Available at: