Monetary Policy in a Small Open Economy with Marshallian Preferences
We study the effects of inflation for a small open economy when the representative agent has Marshallian preferences, with which the rate of time preference is a decreasing function of savings. An increase in the inflation rate reduces the permanent income of the representative agent, which, with Marshallian preferences, also reduces the rate of time preference. Hence, savings falls and the country runs a current account deficit. The numerical evaluations of the model suggest that inflation has significant effects on welfare in the steady state. Copyright © 2009 The Economic Society of Australia.
Year of publication: |
2009
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Authors: | ANGYRIDIS, CONSTANTINE ; MANSOORIAN, ARMAN |
Published in: |
The Economic Record. - Economic Society of Australia - ESA, ISSN 1475-4932. - Vol. 85.2009, 268, p. 21-31
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Publisher: |
Economic Society of Australia - ESA |
Saved in:
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