Money growth targeting and indeterminacy in small open economies

Kevin Huang (), Qinglai Meng () and Jianpo Xue
Additional contact information
Qinglai Meng: Oregon State University

No 18-00005, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: In a closed economy setting a cash-in-advance monetary economy under money growth targeting is prone to self-fulfilling expectations and beliefs-driven fluctuations. This paper shows that such extrinsic instability is less of a problem in a small open economy integrated in the world goods and financial markets. This is because endogenous terms-of-trade movements associated with global goods trade and cross-border capital flows and endogenous international asset price adjustments associated with global financial transaction serve as an endogenous stabilizer to reduce the likelihood of sunspot equilibria. We find that for empirically reasonable parametrization of the small open economy sunspot beliefs are unlikely to become self-fulfilled.

Keywords: self-fulfilling expectations; indeterminacy; saddle-path stability; money growth targeting; small open economy (search for similar items in EconPapers)
JEL-codes: E3 F4 (search for similar items in EconPapers)
Date: 2018-05-19
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.accessecon.com/pubs/VUECON/VUECON-18-00005.pdf (application/pdf)

Related works:
Journal Article: Money growth targeting and indeterminacy in small open economies (2019)
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:van:wpaper:vuecon-18-00005

Access Statistics for this paper

More papers in Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by John P. Conley ().