Evaluation of unconventional monetary policy in a small open economy
Martin Pietrzak
No 167, FIW Working Paper series from FIW
Abstract:
This paper shows what are the consequences of omitting international dimension issues like international trade and financial channels when modeling the effects of unconventional monetary policy tools. To evaluate the size of discrepancies between consequences of a large-scale asset purchase program in a small open economy and a closed one, we extend one of the existing models analyzing a large-scale asset purchases by adding small open economy features. Finally we compare it with the original version. We find that previous studies might overestimate the extent to what large-scale asset purchases affect real activity. Allowing agents to trade internationally with goods as well as saving via foreign, currency denominated deposits leads to a leakages that result in substantial differences between large-scale asset purchases in a small open economy and an autarky. Moreover, our results show that negative supply side shocks have less severe consequences in a small open economy comparing to an autarky, because they are offset by the real exchange rate depreciation which boosts competitiveness.
Keywords: unconventional monetary policy; financial frictions; small open economy (search for similar items in EconPapers)
JEL-codes: E52 F41 (search for similar items in EconPapers)
Pages: 31
Date: 2016-03
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:wsr:wpaper:y:2016:i:167
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