PL EN


2004 | 51 | 7/8 | 625-637
Article title

Interest rates and price levels in a small open economy

Authors
Title variants
Languages of publication
HU
Abstracts
EN
The study examines what effects various interest rates have on the price level and nominal prices in an open (primarily small) economy with free flows of capital. A closed economy calls for a distinction only between nominal and real rates of interest, but in an open economy, questions of interest-rate parity have to be considered as well. It is necessary to clarify the factors behind the real interest rate important for price-level pass-through and for the scale of risk premium. Analysis of interest-rate effects begins with the mechanism whereby the interest rate influences the cost of fixed assets (explicit or implicit rents). Secondly, the mechanism behind the relation of export-sector production decisions and domestic interest rates is examined. It emerges that decisions of the export sector are independent of domestic interest rates. Thirdly, certain types of pricing behaviour are studied. It is shown that a rise in the interest rate that does not alter the present exchange rate is a price-raising factor for the importing country. It can be assumed that if the interest rate has a demand effect in a closed economy, this will presumably be much weaker in a small open economy.
Keywords
Year
Volume
51
Issue
7/8
Pages
625-637
Physical description
Document type
ARTICLE
Contributors
author
  • J. Vincze, no address given, contact the journal editor
References
Document Type
Publication order reference
Identifiers
CEJSH db identifier
06HUAAAA00661674
YADDA identifier
bwmeta1.element.1721ae9a-6850-3456-93ff-b9ac3e4cf414
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