Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/148034
Authors: 
Pietrzak, Martin
Year of Publication: 
2016
Series/Report no.: 
FIW Working Paper 167
Abstract: 
This paper shows what are the consequences of omitting international dimension issues like international trade and financial channels when modeling the effects of unconventional monetary policy tools. To evaluate the size of discrepancies between consequences of a large-scale asset purchase program in a small open economy and a closed one, we extend one of the existing models analyzing a large-scale asset purchases by adding small open economy features. Finally we compare it with the original version. We find that previous studies might overestimate the extent to what large-scale asset purchases affect real activity. Allowing agents to trade internationally with goods as well as saving via foreign, currency denominated deposits leads to a leakages that result in substantial differences between large-scale asset purchases in a small open economy and an autarky. Moreover, our results show that negative supply side shocks have less severe consequences in a small open economy comparing to an autarky, because they are offset by the real exchange rate depreciation which boosts competitiveness
Subjects: 
unconventional monetary policy
financial frictions
small open economy
JEL: 
E52
F41
Document Type: 
Working Paper

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