EconPapers    
Economics at your fingertips  
 

Macroeconomic instability and targeting rules for monetary policy in an endogenously growing small open economy

Kuan‐jen Chen, Ching‐chong Lai and Ting‐wei Lai
Authors registered in the RePEc Author Service: Ching-chong Lai

Review of International Economics, 2021, vol. 29, issue 4, 904-926

Abstract: By using the feature that money can lower unit transaction costs, this paper develops a monetary endogenous growth model for a one‐sector small open economy, and uses it to examine the possibility of the occurrence of belief‐driven fluctuations. It is found that the emergence of belief‐driven fluctuations is crucially related to targeting rules for monetary policy. More specifically, when the monetary authorities target the specific money growth rate, macroeconomic instability generated by belief‐driven fluctuations can arise even if labor externalities are totally absent. This finding runs in sharp contrast to the Benhabib–Farmer assertion needed for the occurrence of belief‐driven fluctuations. It is also found that, when the monetary authorities target the specific inflation rate, macroeconomic instability generated by belief‐driven fluctuations can never prevail regardless of the extent of the unit transaction costs.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://doi.org/10.1111/roie.12514

Related works:
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:bla:reviec:v:29:y:2021:i:4:p:904-926

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0965-7576

Access Statistics for this article

Review of International Economics is currently edited by E. Kwan Choi

More articles in Review of International Economics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2022-08-07
Handle: RePEc:bla:reviec:v:29:y:2021:i:4:p:904-926