Working Paper

Insulating policies for large and small countries

Abstract: In this paper we investigate policies for the large and small country that provide complete insulation from foreign real and monetary disturbances. We find that when there exists two channels of transmission, the integrated commodity and capital markets, using only exchange rate policies does not provide complete insulation. However, floating the exchange rate and pursuing a specific interest rate target does. In terms of output variability however, insulating policies may be undesirable.

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Working Papers

Publication Date: 1984

Number: 8408