IDEAS home Printed from https://ideas.repec.org/a/jda/journl/vol.46year2012issue1pp359-369.html
   My bibliography  Save this article

Wage-Price Flexibility, Exchange Rate Flexibility, Capital Controls, and the Adjustment Speed in the Money Market

Author

Listed:
  • Sahar Bahmani

    (University of Wisconsin - Parkside, USA)

Abstract

The speed with which macro variables in the money market adjust toward their long-run equilibrium values has great implication for the effectiveness of monetary policy. Previous research shows that the adjustment speed is higher in more open economies. In this paper, we introduce three additional determinants of adjustment speed. More precisely, we argue that more wage-price flexibility, more exchange rate flexibility, and less restriction on capital flows foster the speed of adjustment. Empirically, a cross-sectional model is specified in which adjustment speed is treated as the dependent variable and a measure of openness, a measure of wage-price flexibility, a measure of exchange rate flexibility, and black market premium as a measure of capital controls are treated as independent variables. After estimating the adjustment speed using the bounds testing approach to cointegration and error-correction modeling for 28 developing countries and after constructing the other four independent variables for the same countries, we estimate different variants of the cross-sectional model.

Suggested Citation

  • Sahar Bahmani, 2012. "Wage-Price Flexibility, Exchange Rate Flexibility, Capital Controls, and the Adjustment Speed in the Money Market," Journal of Developing Areas, Tennessee State University, College of Business, vol. 46(1), pages 359-369, January-J.
    • Handle: RePEc:jda:journl:vol.46:year:2012:issue1:pp:359-369
    as

    Download full text from publisher

    File URL: http://muse.jhu.edu/journals/journal_of_developing_areas/v046/46.1.bahmani.html
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Speed of Adjustment; Wage-Price Flexibility; Exchange Rate Flexibility; Capital Controls;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • F30 - International Economics - - International Finance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jda:journl:vol.46:year:2012:issue1:pp:359-369. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Abu N.M. Wahid (email available below). General contact details of provider: https://edirc.repec.org/data/cbtnsus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.