01746cas a2200253 a 4500 AALejournalIMF000899 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451921427 1018-5941 BD-DhAAL BD-DhAAL Calvo, Guillermo. Interest Rate Targeting in a Small Open Economy : The Predetermined Exchange Rates Case / Guillermo Calvo, Carlos Vegh Gramont. Washington, D.C. : International Monetary Fund, 1990. 1 online resource (32 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students An important hurdle in analyzing interest rate targeting is that standard models usually lead to price level or inflation rate indeterminacy. This paper develops a simple framework in which such problems do not arise because the bonds whose interest rate is controlled provide liquidity services. This framework is used to examine interest rate targeting in a small open economy under predetermined exchange rates. A permanent increase in the interest rate has no real effects. In contrast, a temporary increase in the interest rate leads to higher consumption and to a current account deficit that worsens over time. Mode of access: Internet Vegh Gramont, Carlos. IMF Working Papers; Working Paper ; No. 1990/021 Full text available on IMF http://elibrary.imf.org/view/journals/001/1990/021/001.1990.issue-021-en.xml IMF e-Library