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Monetary policy of a small open economy in the world production chain

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  • Chu, Hsiao-Lei

Abstract

In the world production chain there is a small economy that outsources production to its upstream, sells intermediate goods to its downstream and consumes imported final goods. It is shown that in responding to shocks from demand for intermediate goods, from the wage rate in the upstream and from the currency exchange rate between the upstream and downstream countries, the monetary policy of the small country is insignificant in the sense that any attempt of changing its monetary stance to raise national welfare will be offset by the movements of exchange rates.

Suggested Citation

  • Chu, Hsiao-Lei, 2012. "Monetary policy of a small open economy in the world production chain," Economic Modelling, Elsevier, vol. 29(6), pages 2751-2755.
    • Handle: RePEc:eee:ecmode:v:29:y:2012:i:6:p:2751-2755
    DOI: 10.1016/j.econmod.2012.06.026
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary policy; World production chain;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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