The Effectiveness of Stabilization Policy in a Small Open Economy

Martin Prachowny

No 77, Working Paper from Economics Department, Queen's University

Abstract: A small open economy is forced to operate in a constrained policy environment. Although for some products even a small country may have some monopoly power, in the aggregate these countries approximate more closely the behaviour of price takers than price makers. It is to economies such as these, and not larger or closed economies, that the analysis of this paper is devoted. The extremity of the assumptions is such as to make the analysis totally inapplicable to countries such as the United States. The purpose of the paper, then, is to investigate the characteristics peculiar to a small open economy and to incorporate them in a model which will allow us to discuss the effectiveness of stabilization policy in this constrained environment. In particular, it is proposed to re-examine Mundell's conclusions about monetary and fiscal policy under fixed and flexible exchange rates and to show that, under flexible exchange rates, an optimum policy combination exists that eliminates the trade-off between inflation and unemployment. As is common in these stabilization policy models, growth in factor supplies, and therefore output, is assumed not to exist.

Pages: 20 pages
Date: 1972-03
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://qed.econ.queensu.ca/working_papers/papers/qed_wp_77.pdf First version 1972 (application/pdf)

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:qed:wpaper:77

Access Statistics for this paper

More papers in Working Paper from Economics Department, Queen's University Contact information at EDIRC.
Bibliographic data for series maintained by Mark Babcock ().