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Published in:
1999 | OriginalPaper | Chapter
Small Union of Two Countries
Author : Prof. Dr. Michael Carlberg
Published in: European Monetary Union
Publisher: Physica-Verlag HD
Included in: Professional Book Archive
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In this section we make the following assumptions. The monetary union is a small open economy with perfect capital mobility. For the small union, the world interest rate is given exogenously r* = const. Under perfect capital mobility, the union interest rate corresponds to the world interest rate r = r*. Thus the union interest rate is constant, too. The exchange rate between the union and the rest of the world is flexible.