The short run efficacy of monetary policy under floating exchange rates reconsidered |
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Authors: | Francïsco R Casas |
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Institution: | University of Toronto, Toronto, Ontario M5S 1A1, Canada |
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Abstract: | This paper disputes the argument that the short-run effectiveness of monetary policy in stabilizing domestic output under floating rates is necessarily reduced if elasticities of demand for imports and exports with respect to the current exchange rate are low and capital flows depend on the exchange rate. It is shown that the relative efficacy of monetary changes is determined by the interest rate elasticity of international interest payments and receipts and the effect of exchange rate variations on the demand for money in addition to the exchange rate elasticities of trade and capital flows. |
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