NDLI: Monetary Policy Analysis in a Small Open Credit-Based Economy

Content Provider	Springer Nature Link
Author	Agér, Pierre Richard Montiel, Peter J.
Copyright Year	2008
Abstract	This paper describes a simple framework for monetary policy analysis in a small open economy where bank credit is the only source of external finance. At the heart of the model is the link between banks’ lending rates (which incorporate a premium over and above the marginal cost of borrowing) and firms’ net worth. In contrast to models in the Stiglitz-Weiss or Kiyotaki-Moore tradition, the supply of bank loans is perfectly elastic at the prevailing rate. The central bank sets the refinance rate and provides unlimited access to liquidity at that rate. The model is used to study the effects of changes in official interest rates, under both fixed and flexible exchange rates. Various extensions are also discussed, including income effects, the cost channel, the role of land as collateral, and dollarization.
Starting Page	423
Ending Page	455
Page Count	33
File Format	PDF
ISSN	09237992
Journal	Open Economies Review
Volume Number	19
Issue Number	4
e-ISSN	1573708X
Language	English
Publisher	Springer US
Publisher Date	2008-04-22
Publisher Place	Boston
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Monetary policy Credit market imperfections Small open economy Development Economics International Economics
Content Type	Text
Resource Type	Article
Subject	Economics and Econometrics

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Monetary Policy Analysis in a Small Open Credit-Based Economy