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Monetary policy in high inflation open economies: evidence from Israel and Turkey
Author(s) -
Mallick Sushanta K.,
Mohsin Mohammed
Publication year - 2007
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.324
Subject(s) - economics , small open economy , volatility (finance) , open economy , monetary policy , inflation (cosmology) , autoregressive conditional heteroskedasticity , monetary economics , inflation targeting , neutrality , current account , macroeconomics , keynesian economics , econometrics , exchange rate , philosophy , physics , epistemology , theoretical physics
With quarterly data from Israel and Turkey we estimate generalized impulse response functions to show that inflation has no long‐run real effects on consumption, investment and the current account balance. The findings are robust even after allowing for inflation volatility obtained through GARCH estimates. We develop an inter‐temporal optimizing model of a small open economy with a fixed rate of time preference that supports the empirics. Our model, thus, extends the super‐neutrality results (à la Sidrausky) in an open economy paradigm. Copyright © 2007 John Wiley & Sons, Ltd.