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On the Link Between Exchange‐rate Regimes, Capital Controls and Monetary Policy Autonomy in Small European Countries, 1979–2000
Author(s) -
Forssbæck Jens,
Oxelheim Lars
Publication year - 2006
Publication title -
world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/j.1467-9701.2006.00786.x
Subject(s) - economics , monetary policy , monetary economics , exchange rate regime , exchange rate , capital (architecture) , autonomy , interest rate parity , interest rate , capital control , fixed exchange rates , capital account , foreign capital , international economics , capital flows , macroeconomics , market economy , foreign direct investment , liberalization , archaeology , political science , law , history
We investigate international monetary‐policy transmission under different exchange‐rate and capital‐account regimes in eleven small, open economies during the 1980s and 1990s. We find no systematic link between ex ‐post monetary‐policy autonomy and exchange‐rate regimes. Capital controls appear to have provided a degree of temporal insulation from foreign monetary policy shocks, though not strict autonomy. The results are consistent both with short‐term autonomy for small countries even under fixed exchange rates and an open capital account, and with long‐term dependence under flexible exchange rates and an independent stability target. Results also indicate that euro‐area market interest rates are significantly more responsive to the development of the corresponding US rate than were the previous national rates.