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Title: |
Monetary Bands and Monetary Neutrality |
| Author: |
Hahm, Sang-Moon |
| Author
Affiliation: |
KDI School of Public Policy & Management |
| Source: |
International Economic Journal, Summer 2002, v. 16, no. 2, pp. 115-128 |
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Publication Date: |
Summer 2002 |
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Abstract: |
This paper
attempts to provide an explanation of the short-run monetary
non-neutrality in an economy where agents have full current information
and no nominal prices are set in advance. This non-neutrality arises due
to the government's setting of nominal target bands. If the current
money supply is near the upper bound of the band, any increase in money
supply will require the monetary authority to take immediate action to
reduce it. This serves to decrease the expected rate of inflation, thus
increasing the demand for real balances and production. This paper also
shows that if readjustments of nominal target bands are likely to occur,
then the positive effect of money on output becomes attenuated. |
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