Short-Run Independence of Monetary Policy under Pegged Exchange Rates and Effects of Money on Exchange Rates and Interest Rates

Lee Ohanian and Alan Stockman

Journal of Money, Credit and Banking, 1997, vol. 29, issue 4, 783-806

Abstract: This paper examines the effects of money supply changes on exchange rates, interest rates, and production in an optimizing two-country model in which some sectors of the economy have predetermined nominal prices in the short run and other sectors have flexible prices. Money supply shocks have liquidity effects both within and across countries and induce a cross-country real-interest differential. The model predicts that liquidity effects are highly nonlinear and are not likely to be captured well empirically by linear models, particularly those involving only a single country. A striking implication of the model is that countries have a significant degree of short-run independence of monetary policy even under pegged exchange rates. Copyright 1997 by Ohio State University Press.

Date: 1997
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Related works:
Journal Article: Short-run independence of monetary policy under pegged exchange rates and effects of money on exchange rates and interest rates (1997)
Working Paper: Short-Run Independence of Monetary Policy Under Pegged Exchange Rates and Effects of Money on Exchange Rates and Interest Rates (1993)
Working Paper: Short-Run Independence of Monetary Policy Under Pagged Exchange Rates and Effects of Money on Exchange Rates and Interest Rates (1993)
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:29:y:1997:i:4:p:783-806

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