Current account and exchange rate dynamicsEconomic Notes (2001)
AbstractThe 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 DateFebruary, 2001
Citation InformationLilia Cavallari. "Current account and exchange rate dynamics" Economic Notes Vol. 1 Iss. 1 (2001)
Available at: http://works.bepress.com/lilia_cavallari/6/