Small States are Different: What the Literature says about Monetary and Exchange Policies, 2013: There is sufficient evidence from the existing literature to support the view that small states are different: they are more open, they are forced by their limited resources to be specialised in a few internationally competitive products and services, and they therefore do not have the option of adopting more of a closed economy strategy in pursuit of economic growth. Small states have outperformed large states, but only when they pursued strategies appropriate to their circumstances. The strategies for stabilisation and growth that work for large economies do not suit the circumstances of small economies, and if applied as in large countries, they invariably result in policy failure. In particular, the record shows that economic growth in the small open economy depends on increasing quality and productivity, and is unaffected by changes in relative prices. This paper surveys the literature with a view to gaining insights into monetary and exchange policies that are best for small economies.
