The "butterfly effect" of small economies
This Reserve Bank of Australia Working Paper studies the implications of foreign-induced indeterminacy for the conduct of monetary policy in a small open economy.
The authors argue taht in the "canonical sticky-price small open economy model, we find that indeterminacy arising in the large economy can increase the volatility of the small economy."
Their main finding is that 'smallness' is a property of the unique rational expectations equilibrium of the large economy, and not a general property
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