Rational expectations and the effects of financial liberalization on price level and output
South African Journal of Economic and Management Sciences
| Field | Value | |
| Title | Rational expectations and the effects of financial liberalization on price level and output | |
| Creator | Gupta, Rangan | |
| Description | This paper develops a generalized short-term model of a small open financially repressed economy, characterized by unorganized money markets, intermediate goods imports, capital mobility, flexible exchange rates and rational expectations, to analyze the price- and output-effects of financial liberalization. The analysis shows that financial deregulation, in the form of increased rate of interest on deposits and higher cash reserve requirements, unambiguously and unconditionally reduces domestic price level, but fails to affect output. Moreover, the result does not depend on the degree of capital mobility. The paper recommends that a small open developing economy should deregulate interest rates and tighten monetary policy if reducing inflation is a priority. Such a policy, however, requires the establishment of a flexible exchange rate regime. | |
| Publisher | AOSIS Publishing | |
| Date | 2013-02-25 | |
| Identifier | 10.4102/sajems.v10i1.540 | |
| Source | South African Journal of Economic and Management Sciences; Vol 10, No 1 (2007); 107-115 2222-3436 1015-8812 | |
| Language | eng | |
| Relation |
The following web links (URLs) may trigger a file download or direct you to an alternative webpage to gain access to a publication file format of the published article:
https://sajems.org/index.php/sajems/article/view/540/211
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