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MONETARY RULES AND ENDOGENOUS GROWTH IN AN OPEN ECONOMY

Published online by Cambridge University Press:  27 April 2012

Ching-Chong Lai  and
Chi-Ting Chin
Ching-Chong Lai*
Affiliation:
Institute of Economics, Academia Sinica, National Sun Yat-Sen University and Feng Chia University
Chi-Ting Chin
Affiliation:
Ming Chuan University
*
Address correspondence to: Ching-chong Lai, Institute of Economics, Academia Sinica, Nankang, Taipei 115, Taiwan; e-mail: cclai@econ.sinica.edu.tw.
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Abstract

This paper develops a monetary endogenous growth model for an open economy. The salient feature of the model is that it is able to deal with various monetary policy rules, including money growth rate targeting, inflation rate targeting, and nominal income growth rate targeting. It is found that a rise in the pegged rate may either increase or decrease the balanced-growth rate under regimes of both money growth rate targeting and nominal income growth targeting. However, a rise in the pegged rate is sure to depress the balanced-growth rate under the regime of inflation rate targeting. It is also found that money growth rate targeting is fundamentally equivalent to nominal income growth rate targeting if a specific restriction is imposed, and inflation rate targeting is not qualitatively equivalent to either money growth rate targeting or nominal income growth rate targeting.

Keywords

Endogenous GrowthMonetary Policy RulesEquivalence
Type
Articles
Information
Macroeconomic Dynamics , Volume 17 , Issue 2 , March 2013 , pp. 431 - 463
Copyright
Copyright © Cambridge University Press 2012

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