Policy Changes and External Disturbances in a Small Open Economy: Stability and Dynamic Responses

Abstract Government policies are frequently known to be temporary and thus their termination is perfectly anticipated. These foreseen policy changes must be consistent with equilibrium in both the goods market and asset markets. Potential problems arise because prices often play dual roles, both as final goods prices, and as asset prices, as components of rates of return. We show how the economy accommodates an anticipated policy change depends upon its production flexibility and its structure. With flexible investment, an anticipated reduction in government expenditure is fully accommodated by capital accumulation. When investment involves adjustment costs, the marginal utility of wealth and the price of capital both jump so as to maintain equality among rates of return. Goods market clearance is maintained by a combination of increases in consumption and investment. Extensions of the model to include inventories and to a small open economy are also considered and contrasted.

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CNOOC-Nexen, State-Controlled Enterprises and Canadian Foreign Investment Policies: Adapting to Divergent Modernization

Canadian Journal of Political Science ◽

10.1017/s0008423914000201 ◽

2014 ◽

Vol 47 (2) ◽

pp. 349-373 ◽

Cited By ~ 5

Author(s):

Geoffrey Hale

Keyword(s):

Open Economy ◽

Foreign Investment ◽

Small Open Economy ◽

Policy Changes ◽

Economic Interests ◽

Investment Policies ◽

Regulatory Policies ◽

Takeover Bids ◽

Investment Patterns ◽

Trade And Investment

AbstractThis article examines the evolving debate over takeover bids by foreign state-owned and influenced enterprises (SOEs) in the context of CNOOC's successful 2012 acquisition of Nexen Inc., historical debates over foreign investment in Canada and the ongoing adaptation of Canadian trade and investment policies to global shifts in economic activity and power. It views SOE-related policy changes as responses to four broad factors: Canada's adaptation to changing global investment patterns as a small, open economy, efforts to diversify Canada's trade and investment relations while balancing domestic regional and sectoral interests, the extension of trade-related principles of reciprocity to investment policies and competition among governmental and economic interests in the allocation of discretion in corporate governance and related regulatory policies.

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The long-run stability of a small, open economy under crawling peg regime

Acta Oeconomica ◽

10.1556/aoecon.52.2002.1.3 ◽

2002 ◽

Vol 52 (1) ◽

pp. 57-78

Author(s):

S. Çiftçioğlu

Keyword(s):

Exchange Rate ◽

Open Economy ◽

Risk Premium ◽

Small Open Economy ◽

Exchange Rate Policy ◽

Price Stability ◽

Output Stability ◽

Long Run ◽

The Exchange Rate ◽

The Impact

The paper analyses the long-run (steady-state) output and price stability of a small, open economy which adopts a “crawling-peg” type of exchange-rate regime in the presence of various kinds of random shocks. Analytical and simulation results suggest that with the exception of money demand shocks, an exchange rate policy which involves a relatively higher rate of indexation of the exchange rate to price level is likely to lead to the worsening of price stability for all types of shocks. On the other hand, the impact of adopting such a policy on output stability depends on the type of the shock; for policy shocks to the exchange rate and shocks to output demand, output stability is worsened whereas for the shocks to risk premium of domestic assets, supply price of domestic output and the wage rate, better output stability is achieved in the long run.

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