The Expenditure Switching Effect, Welfare and Monetary Policy in a Small Open Economy

Alan Sutherland ()

The Institute for International Integration Studies Discussion Paper Series from IIIS

Abstract: This paper analyses the implications of the 'expenditure switching effect' for the role of the exchange rate in monetary policy in a small open economy. It is shown that, when elasticity of substitution between home and foreign goods is not equal to unity, welfare depends on the variances of producer prices and the terms of trade. Producer-price targeting is compared to consumer-price targeting and a fixed exchange rate. It is found that a fixed exchange rate yields higher welfare than the other regimes only when the elasticity of substitution between home and foreign goods is a very high. ownership.

Keywords: monetary policy; exchange rates; welfare (search for similar items in EconPapers)
Date: 2005-01-28
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The expenditure switching effect, welfare and monetary policy in a small open economy (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:iis:dispap:iiisdp022

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