Do Fixed Exchange Rates Fetter Monetary Policy? A Credit View

Burton Abrams and Russell F. Settle ()
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Russell F. Settle: Department of Economics,Western Washington University

No 03-09, Working Papers from University of Delaware, Department of Economics

Abstract: The Bernanke-Blinder credit-view model is expanded to encompass a small, open economy with fixed exchange rates. In contrast to conventional wisdom and traditional models, monetary policy is resurrected as a stabilization tool. Further, various financial sector shocks are shown to have real aggregate demand effects. We show that independent monetary policy actions can have substantive impacts on aggregate demand despite perfect capital mobility and adherence to a fixed exchange rate regime.

Keywords: Money Supply; Credit; Money Multipliers, Open Economy Macroeconomics (search for similar items in EconPapers)
JEL-codes: E51 F41 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2003
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Published in Eastern Economic Journal, Vol. 33, No.2, Spring, 2007.

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Journal Article: Do Fixed Exchange Rates Fetter Monetary Policy? A Credit View (2007)
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