Monetary policy in small open economies

Author(s): Worrell, DeLisle (1995)

Created 22 Jul, 1995
Categories Working Papers
Views: 1877
This paper indicates the objectives of a central bank in a small open economy in the use of monetary policies, that is, through increased savings and reduction in consumption, by diverting credit from the private sector to government and to switch from foreign to domestic asset to offset the rapid build-up of net foreign assets by the private sector. To achieve this, the following instruments are available to it: change the interest rate on its temporary advances to banks and to other financial institutions which have accounts with the central bank; purchase or sell government securities from its own portfolio or issue or redeem its own obligations; stipulate mandatory limits on credit outstanding with banks and other financial institutions; change requirements for banks and other financial institutions to hold cash reserves and liquid reserves or set or change one market interest rate such as the minimum interest rate on deposits, the prime rate or the average rate on deposits or loans.

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