US Monetary Policy Announcements and the Term Structure of Interest Rate Differentials: Evidence from Hong Kong and Singapore

No 102005, Working Papers from Hong Kong Institute for Monetary Research

Abstract: The paper analyzes how globalization forces induce monetary authorities, guided in their policies by the welfare criterion of a representative household, to put a greater emphasis on reducing the inflation rate than on narrowing the output gaps. We demonstrate that with capital account liberalization the representative household is able to smooth fluctuations in consumption, and thus becomes relatively insensitive to fluctuations in the output gap. With trade liberalization the economy tends to specialize in the production of relatively few varieties of goods. The specialization in production as a result of trade openness increases the distortion originating from fluctuations in the inflation rate. Therefore, policymakers (guided by efficiency considerations) become more aggressive on inflation and less responsive to the output gap when trade and financial openness increases. We provide evidence on the effect on preferences towards fluctuations in the output gap and in inflation of trade and capital openness, which supports the theory predictions.

Pages: 22 pages
Date: 2005-10
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.hkimr.org/uploads/publication/228/ub_full_0_2_109_wp200510_text.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.hkimr.org/uploads/publication/228/ub_full_0_2_109_wp200510_text.pdf [301 Moved Permanently]--> http://www.aof.org.hk/research/HKIMR/uploads/publication/228/ub_full_0_2_109_wp200510_text.pdf [301 Moved Permanently]--> https://www.aof.org.hk/research/HKIMR/uploads/publication/228/ub_full_0_2_109_wp200510_text.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hkm:wpaper:102005

Access Statistics for this paper

More papers in Working Papers from Hong Kong Institute for Monetary Research Contact information at EDIRC.
Bibliographic data for series maintained by HKIMR ().