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|Title:||Macroeconomic Instability and Targeting Rules for Monetary Policy in An Endogenously Growing Small Open Economy|
|Issue Date:||2022-04-11 13:24:55 (UTC+8)|
|Abstract:||By using the feature that money can lower unit transaction costs, this paper develops a monetary endogenous growth model for a one-sector small open economy, and uses it to examine the possibility of the occurrence of belief-driven fluctuations. It is found that the emergence of belief-driven fluctuations is crucially related to targeting rules for monetary policy. More specifically, when the monetary authorities target the specific money growth rate, macroeconomic instability generated by belief-driven fluctuations can arise even if labor externalities are totally absent. This finding runs in sharp contrast to the Benhabib–Farmer assertion needed for the occurrence of belief-driven fluctuations. It is also found that, when the monetary authorities target the specific inflation rate, macroeconomic instability generated by belief-driven fluctuations can never prevail regardless of the extent of the unit transaction costs.|
|Relation:||Review of International Economics, Vol.29, No.4, pp.904-926|
|Appears in Collections:||[經濟學系] 期刊論文|
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