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Erschienen in:
2006 | OriginalPaper | Buchkapitel
Inflation, Growth and Exchange Rate Regimes in Small Open Economies
verfasst von : Paula L. Hernandez-Verme
Erschienen in: Recent Developments on Money and Finance
Verlag: Springer Berlin Heidelberg
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This paper compares the merits of alternative exchange rate regimes in small open economies where financial intermediaries perform a real allocative function, there are multiple reserve requirements, and credit market frictions may or may not cause credit rationing. Under floating exchange rates, raising domestic inflation can increase production if credit is rationed. However, there exist inflation thresholds: increasing inflation beyond the threshold level will reduce domestic output.
Endogenously arising volatility may arise independently of the exchange rate regime. Private information — with high rates of domestic inflation — increases the scope for indeterminacy and economic fluctuations.