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Real asset returns, inflation and activity in a small, open, Cash-in-Advance economy

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  • Mansoorian, Arman
  • Mohsin, Mohammed

Abstract

The effects of inflation are worked out for a small open economy with Cash-in-Advance (CIA) constraints on bond purchases. If all transactions are subject to CIA constraints, an increase in the inflation rate will reduce savings, bringing about a current account deficit, while the capital stock will be unaffected. If investment is not subject to CIA constraints, an increase in the inflation rate will encourage investment and reduce savings, bringing about a current account deficit. Numerical evaluation of the model gives rise to falls in real interest rates that are in line with recent empirical findings.

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  • Mansoorian, Arman & Mohsin, Mohammed, 2013. "Real asset returns, inflation and activity in a small, open, Cash-in-Advance economy," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 234-250.
    • Handle: RePEc:eee:jimfin:v:32:y:2013:i:c:p:234-250
    DOI: 10.1016/j.jimonfin.2012.04.014
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    More about this item

    Keywords

    Real asset returns; Inflation; Economic activity; Open economy; Cash-in-Advance;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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