Abstract
This paper attempts to explain the role of capital inflows in creating economic booms and busts in a small open economy with sovereign currency. We develop a stock-flow consistent (SFC) model for a small open economy while relying on the experience of the Icelandic crisis. We demonstrate the destabilizing effects of capital inflows on the economy by allowing for a sudden stop, and also discuss the role of capital controls as a policy response in the event of a crisis due to sudden stops. Finally, we discuss the policy implications of our results in order to tackle the destabilising effects associated with financial flows in a small economy.
Originalsprog | Engelsk |
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Tidsskrift | European Journal of Economics and Economic Policies : Intervention |
Vol/bind | 16 |
Udgave nummer | 1 |
Sider (fra-til) | 94-133 |
Antal sider | 40 |
ISSN | 2052-7764 |
DOI | |
Status | Udgivet - 2019 |