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Interest Rate Flexibility and the Open Economy *
Author(s) -
KIERNAN E.
Publication year - 1979
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1979.tb02239.x
Subject(s) - economics , balance of payments , interest rate , monetary policy , monetary economics , capital account , flexibility (engineering) , capital (architecture) , offset (computer science) , small open economy , open economy , general equilibrium theory , payment , macroeconomics , finance , exchange rate , management , archaeology , computer science , history , programming language
The objective of the paper is to analyze the importance of institutional changes in the financial system for the efficacy of monetary policy and in particular for the connection between the balance of payments (capital account) and monetary policy. Particular institutional developments studied include the emergence of certificates of deposit and the removal of interest rate ceilings in 1973. The result established, using a general equilibrium model, is that the degree to which transactions in the capital account of the balance of payments offset a domestic monetary expansion is greater in a regime of market‐determined interest rates than in a regime of administered rates.