Inflation Dynamics and the Cost Channel: The Small Open Economy Case Academic Article uri icon

abstract

  • All rights of reproduction in any form reserved. This paper investigates the cost channel of monetary policy, transmitting its effect on economic activities other than conventional demand side, in a small open economy. The innovations lie in examination of the cost channel in a small open economy with both financial market frictions and exchange rate pass-through on the marginal cost of firms working capital and inflation dynamics. Utilizing the Canadian and Australian quarterly data, the empirical results from the present value model of the forward-looking Phillips curve show that, the larger the degree of exchange rate pass-through is, the more the cost channel is pronounced.

published proceedings

  • ANNALS OF ECONOMICS AND FINANCE

author list (cited authors)

  • Chang, J., & Jansen, D. W.

publication date

  • January 1, 2014 11:11 AM