The Employment, Investment and Current Account Effects of Exchange Rate Policies in a Cash-in-Advance Economy

Arman Mansoorian and Mohammed Mohsin ()

Working Papers from York University, Department of Economics

Abstract: The effects of exchange rate policies are examined for a small open economy in an infinite horizon model with investment, labor/leisure choice, and cash-in-advance for consumption. An increase in the rate of depreciation of the domestic currency reduces consumption and labor supply, as the higher inflation increases the price of consumption relative to leisure. The fall in labor reduces the marginal productivity of capital, and a fall in investment. The country runs a current account surplus, despite the fall in output. The dynamics of the model for permanent, temporary and anticipated policy changes are fully worked out.

Keywords: Employment; Investment; Current Account; Cash-in-Advance (search for similar items in EconPapers)
JEL-codes: E52 E58 F31 F32 F41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2002-04
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http://dept.econ.yorku.ca/research/workingPapers/working_papers/paper-3.pdf First version, 2002

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Persistent link: https://EconPapers.repec.org/RePEc:yca:wpaper:2002_04

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