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Monetary Policy in Illiquid Markets: Options for a Small Open Economy

journal contribution
posted on 2023-05-16, 23:39 authored by Claus, E, Dungey, MH, Fry, R
Two impediments to effective monetary policy operation include illiquidity in bond markets and the zero bound of interest rates. Under these conditions alternative means of enacting monetary policy may be required. This paper empirically explores policy options implemented through equity and currency markets that will generate similar inflation responses at different time horizons. In terms of GDP loss the least costly means of achieving a particular long run inflation outcome is via the current monetary policy arrangements. Currency market alternatives are volatile but less expensive than the equity market in terms of output loss for short term inflation horizons. © Springer Science+Business Media, LLC 2007.

History

Publication title

Open Economies Review

Volume

19

Pagination

305-336

ISSN

0923-7992

Department/School

TSBE

Publisher

Springer New York LLC

Place of publication

United States

Repository Status

  • Restricted

Socio-economic Objectives

Monetary policy

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