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Money versus credit in the determination of output for small open economies

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  • Peter Montiel

Abstract

It is well known that in a small open economy where there is perfect substitutability between domestic and foreign assets and costless portfolio adjustment, the monetary authorities, pursuing an exchange-rate target, cannot control the money supply, but can influence the balance of payments through the use of domestic credit. It has been argued that domestic credit is therefore the relevant variable in output determination as well. This paper demonstrates, however, using a “new classical” structural model, that under the conditions that render the money supply uncontrollable, neither money nor domestic credit affects output. Copyright Kluwer Academic Publishers 1991

Suggested Citation

  • Peter Montiel, 1991. "Money versus credit in the determination of output for small open economies," Open Economies Review, Springer, vol. 2(2), pages 203-210, June.
    • Handle: RePEc:kap:openec:v:2:y:1991:i:2:p:203-210
    DOI: 10.1007/BF01886900
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    References listed on IDEAS

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    1. Barro, Robert J, 1977. "Unanticipated Money Growth and Unemployment in the United States," American Economic Review, American Economic Association, vol. 67(2), pages 101-115, March.
    2. Mario I. Blejer & Roque B. Fernandez, 1980. "The Effects of Unanticipated Money Growth on Prices and on Output and Its Composition in a Fixed-Exchange-Rate Open Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 13(1), pages 82-95, February.
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