The expenditure switching effect, welfare and monetary policy in a small open economy

    Research output: Contribution to journalArticlepeer-review

    32 Citations (Scopus)

    Abstract

    This paper analyses the implications of the 'expenditure switching effect' for the role of the exchange rate in monetary policy in a small open economy. it is shown that, when the elasticity of substitution between home and foreign goods is not equal to unity, welfare depends on the variances of producer prices and the terms of trade. Producer-price targeting is compared to consumer-price targeting and a fixed exchange rate. It is found that a fixed exchange rate yields higher welfare than the other regimes only when the elasticity of substitution between home and foreign goods is very high. (c) 2005 Elsevier B.V. All rights reserved.

    Original languageEnglish
    Pages (from-to)1159-1182
    Number of pages24
    JournalJournal of Economic Dynamics and Control
    Volume30
    Issue number7
    DOIs
    Publication statusPublished - Jul 2006

    Keywords

    • monetary policy
    • exchange rates
    • welfare
    • EXCHANGE-RATE
    • PASS-THROUGH
    • MODELS
    • STABILITY
    • FRAMEWORK
    • RULES

    Fingerprint

    Dive into the research topics of 'The expenditure switching effect, welfare and monetary policy in a small open economy'. Together they form a unique fingerprint.

    Cite this