Interest Rate Policy in a Small Open Economy: The Predetermined Exchange Rates Case

1990 ◽  
Vol 37 (4) ◽  
pp. 753 ◽  
Author(s):  
Guillermo A. Calvo ◽  
Carlos A. Vegh
Keyword(s):  
Interest Rate ◽  
Exchange Rates ◽  
Open Economy ◽  
Small Open Economy ◽  
Interest Rate Policy ◽  
Rate Policy

scholarly journals On the bifurcation of a torus in a small open economy model

2011 ◽  
Vol 48 (1) ◽  
pp. 125-134
Author(s):  
Katarína Makovínyiová ◽  
Rudolf Zimka
Keyword(s):  
Interest Rate ◽  
Exchange Rates ◽  
Open Economy ◽  
Invariant Torus ◽  
Small Open Economy ◽  
Sufficient Conditions ◽  
National Income ◽  
Macroeconomic Model ◽  
Money Stock ◽  
Economy Model

Abstract A four-dimensional macroeconomic model of a small open economy under fixed exchange rates is investigated. The model describes the development of national income, capital stock, interest rate and money stock. Sufficient conditions for the existence of an invariant torus are given. A numerical example illustrating the gained results is presented.

scholarly journals NEUTRAL VALUE OF MONEY IN THE PRACTICE OF MONETARY REGULATION

2021 ◽  
Vol 2021 (11) ◽  
pp. 3-22
Author(s):  
Bohdan DANYLYSHYN ◽  
◽  
Ivan BOGDAN ◽  
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Open Economy ◽  
Methodological Approach ◽  
Small Open Economy ◽  
Central Banks ◽  
Interest Rate Policy ◽  
Advantages And Disadvantages ◽  
Potential Gdp ◽  
Value Of Money

The issue of estimating the level of neutral interest rates is a central issue for theoretical foundation of decision-making on interest rate policy in the practice of central banks. As a result of studying theoretical sources, research materials of international organizations and central banks, the factors of the neutral interest rate are systematized, the methods of its estimation are generalized, their advantages and disadvantages are revealed. Factors of the neutral rate are systematized according to the principle of their influence on the demand or supply of money in the economy. It has been established that there is no single generally accepted theoretical and methodological approach to determining the neutral rate in modern practice. A wide variation of methods with varying degrees of reliance on a theoretical basis (from purely mathematical filtration techniques to complex macroeconomic general equilibrium models) extends a field for new research. It is found that a key issue in neutral rate estimating models is the formalization of the relationship between the effects of external and internal factors, which is especially important for countries with a small open economy. Attention is paid to the method for estimating the neutral rate based on the rule of uncovered interest parity, which is used in the national practice of monetary regulation. Systemic shortcomings of this method are revealed on the basis of research of its theoretical bases and results of practical application in the conditions of the Ukrainian economy. The expediency of introducing into the practice of monetary regulation in Ukraine of alternative methodological toolkit for estimating the neutral rate based on the achievements of T. Laubach and J. Williams with adaptation to the open economy settings is justified, which would enhance the role of domestic factors, in particular changes in potential GDP and savings as important determinants of neutral value of money.

On the bifurcation of limit cycles in a dynamic model of a small open economy

2013 ◽  
Vol 24 (3) ◽  
pp. 455-470 ◽  
Author(s):  
KATARÍNA MAKOVÍNYIOVÁ ◽  
RUDOLF ZIMKA
Keyword(s):  
Interest Rate ◽  
Exchange Rates ◽  
Open Economy ◽  
Limit Cycles ◽  
Capital Stock ◽  
Small Open Economy ◽  
Sufficient Conditions ◽  
Macroeconomic Model ◽  
Money Stock ◽  
Bifurcation Of Limit Cycles

In this paper a four-dimensional macroeconomic model of a small open economy, describing the development of income, capital stock, interest rate and money stock, which was constructed in [5] (Makovínyiová, K. & Zimka, R. (2009) On stability in generalized Schinasi's macroeconomic model under fixed exchange rates. Tatra Mt. Math. Publ. 43, 115–122), is analysed. Sufficient conditions for the existence of one pair of purely imaginary eigenvalues and two eigenvalues with negative real parts in the linear approximation matrix of the model are found. Formulae for the calculation of the bifurcation coefficients of the model are derived. A statement about the existence of limit cycles is made. A numerical example is given illustrating the results.

scholarly journals Interest Rate Policy and Exchange Rates Volatility Lessons from Indonesia

2020 ◽  
Vol 9 (2) ◽  
pp. 19-42
Author(s):  
Haryo Kuncoro
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Exchange Rates ◽  
Inflation Targeting ◽  
Exchange Rate Regime ◽  
Exchange Rate Volatility ◽  
Flexible Exchange Rate ◽  
Interest Rate Policy ◽  
Rate Policy ◽  
Exchange Rates Volatility

AbstractWhether or not inflation targeting adoption leads to increased volatility of exchange rates is controversial. The volatility increases with inflation targeting as a result of the flexible exchange rate regime. Others argue that inflation targeting delivers the best outcomes in terms of lower exchange rate volatility. The purpose of this paper is to investigate whether interest rate policy in inflation targeting frameworks – that is subjected to control inflation rate – may reduce the volatility of exchange rates. To test the hypothesis, we use monthly data in the case of Indonesia over the period 2005(7)-2016(7). Several control variables are introduced in the regressions. The result of the autoregressive distributed lag model proves the interest rate policy and foreign exchange intervention fail to reduce the exchange rates volatility. It seems inflation targeting in Indonesia puts too much emphasis on stabilizing the domestic currency thus leading to benign neglect of stabilizing its external value, ultimately resulting in increased exchange rate volatility. These findings suggest that central bank credibility plays an important role in conducting inflation targeting policy which operates primarily through a signalling effect.

Interest Rate Targeting in a Small Open Economy: The Predetermined Exchange Rates Case

1990 ◽  
Vol 90 (21) ◽  
pp. 1 ◽  
Author(s):  
Guillermo Calvo ◽  
Carlos A. Végh Gramont ◽  
◽  
Keyword(s):  
Interest Rate ◽  
Exchange Rates ◽  
Open Economy ◽  
Small Open Economy

scholarly journals Effectiveness of high interest rate policy on exchange rates: A reexamination of the Asian financial crisis

2006 ◽  
Vol 2006 ◽  
pp. 1-9 ◽  
Author(s):  
Tim Brailsford ◽  
Jack H. W. Penm ◽  
Chin Diew Lai
Keyword(s):  
Interest Rate ◽  
Financial Crisis ◽  
Exchange Rates ◽  
Interest Rates ◽  
Asian Financial Crisis ◽  
The Philippines ◽  
High Interest Rate ◽  
Interest Rate Policy ◽  
High Interest ◽  
Rate Policy

One of the most controversial issues in the aftermath of the Asian financial crisis has been the appropriate response of monetary policy to a sharp decline in the value of some currencies. In this paper, we empirically examine the effects on Asian exchange rates of sharply higher interest rates during the Asian financial crisis. Taking account of the currency contagion effect, our results indicate that sharply higher interest rates helped to support the exchange rates of South Korea, the Philippines, and Thailand. For Malaysia, no significant causal relation is found from the rate of interest to exchange rates, as the authorities in Malaysia did not actively adopt a high interest rate policy to defend the currency.

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