Impossible Trinity in a Small Open Economy: A State–Space Model Simulation
| العنوان: | Impossible Trinity in a Small Open Economy: A State–Space Model Simulation |
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| المؤلفون: | Guna Raj Bhatta, Rabindra Nepal, Kankesu Jayanthakumaran, Charles Harvie |
| المصدر: | Asian Development Policy Review. 10:200-225 |
| بيانات النشر: | Asian Economic and Social Society, 2022. |
| سنة النشر: | 2022 |
| مصطلحات موضوعية: | General Medicine |
| الوصف: | Should monetary policy independence be maintained when the exchange rate is fixed under closed capital account conditions in a small open economy? In this study, we simulate the impossible trinity condition during 1989 to 2019 on the Nepalese economy that restricts capital flows and fixes the exchange rate with India. We modify the traditional Taylor rule based on the monetary policy reaction function to characterize Nepal's economic conditions more closely. The state–space model simulation shows that the policy trilemma does not hold in Nepal, such that the model can predict interest rate when the weight for domestic conditions is assigned at a substantially lower level. Therefore, the existing policy mix may need to be revisited to maintain monetary policy independence. Nepal might consider devaluing its currency to neutralize the adverse effects of the negative risk premium and ameliorate the real exchange rate appreciation in the short run and explore alternative arrangements in the long run. |
| تدمد: | 2313-8343 2518-2544 |
| URL الوصول: | https://explore.openaire.eu/search/publication?articleId=doi_________::abaff98fad50cc2c380051b4636b3275 https://doi.org/10.55493/5008.v10i3.4561 |
| رقم الأكسشن: | edsair.doi...........abaff98fad50cc2c380051b4636b3275 |
| قاعدة البيانات: | OpenAIRE |
| تدمد: | 23138343 25182544 |
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