EconPapers    
Economics at your fingertips  
 

Investment and Interest Rate Policy in the Open Economy

Stephen McKnight

Economic Analysis Research Group Working Papers from Henley Business School, University of Reading

Abstract: This paper presents a two-country sticky-price model that allows for capital and investment spending. It analyzes the conditions for equilibrium determinacy under alternative interest-rate rules that react to either domestic or consumer price inflation. It is shown that in the presence of investment, real indeterminacy is considerably easier to obtain once trade openness is permitted. Consequently we argue that sufficiently open economies should adopt a backward-looking rule and sufficiently closed economies should employ a current-looking rule, in order to minimize policy induced aggregate instability.

Keywords: Real indeterminacy; Open economy macroeconomics; Interest rate rules; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E32 E43 E53 E58 F41 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2007-10
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.reading.ac.uk/nmsruntime/saveasdialog.asp?lID=16246&sID=59484 (application/pdf)

Related works:
Journal Article: Investment and interest rate policy in the open economy (2011) Downloads
Working Paper: Investment and interest rate policy in the open economy (2011) Downloads
Working Paper: Investment and Interest Rate Policy in the Open Economy (2007) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rdg:eargwp:earg-wp2007-11

Access Statistics for this paper

More papers in Economic Analysis Research Group Working Papers from Henley Business School, University of Reading Contact information at EDIRC.
Bibliographic data for series maintained by Marie Pearson ().

 
Page updated 2025-03-22
Handle: RePEc:rdg:eargwp:earg-wp2007-11