Suppose there is a small nation (Hayekistan) that has a free-market in currency, but its economy is largely dependent on international trade. If its larger neighbors get stuck in a depression due to the boom-bust cycle created by those nations' central banks, wouldn't the depression spread into Hayekistan despite that nation's sound money policies? If not, then why not?
Yes, but so what? A free country would also be affected by changes stemming from wars and natural disasters elsewhere.
The main difference would be that this country would recover very rapidly.
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Hayekistan would be negatively affected as the customers of individuals in Hayekistan would not be able to pay as much as they had previously for exports. But Hayekistan with a free economy would have access to stuff from other places that have artificially weak currencies. So the Hayekian folks would be able buy lots of stuff thus saving the difference to re-invest in their own economy thus getting them out of the depression much sooner.
Assuming the depressed country did not engage in inflationary policies that cause stagflation, Hayekistanis could buy goods from that country due to decreases in the price level. In addition, Hayekistan could possibly make use of cheap labor coming from the depressed country.
Additionally, you would have to define how exactly the depression would "spread" to another economy. Not to say this doesn't happen, but specifics would be nice.
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