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Monetary policy and country size

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  • Martin, Philippe

Abstract

This paper uses a two-country Lucas tree model with a cash in advance constraint to investigate the impact of country size on monetary policy in the presence of externalities. In this example, the externality is the holding of domestic currency by foreign firms. It is shown that large countries have a relatively smaller incentive to inflate than small countries. Cross-country empirical tests show that among industrialized countries, there exists a negative and significant relationship between the average of inflation rates between 1979 and 1989, and the average of both GDP and population.
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Suggested Citation

  • Martin, Philippe, 1994. "Monetary policy and country size," Journal of International Money and Finance, Elsevier, vol. 13(5), pages 573-586, October.
    • Handle: RePEc:eee:jimfin:v:13:y:1994:i:5:p:573-586
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    Cited by:

    1. Philippe Martin & Claude Jessua, 1996. "L'importance des exclus de l'intégration monétaire en Europe," Revue Économique, Programme National Persée, vol. 47(3), pages 807-817.
    2. Martin, Philippe, 1998. "The Exchange Rate Policy of the Euro: A Matter of Size?," Journal of the Japanese and International Economies, Elsevier, vol. 12(4), pages 455-482, December.
    3. By Alexander W. Hoffmaister, 2001. "Inflation Targeting in Korea: An Empirical Exploration," IMF Staff Papers, Palgrave Macmillan, vol. 48(2), pages 1-5.
    4. Martin, Philippe, 1995. "Free-riding, convergence and two-speed monetary unification in Europe," European Economic Review, Elsevier, vol. 39(7), pages 1345-1364, August.
    5. Bohn, Frank, 2013. "Grand corruption instead of commitment? Reconsidering time-inconsistency of monetary policy," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 478-490.

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