How does the ZLB affect the properties of alternative exchange rate systems?

Balfoussia, Hiona; Dellas, Harris; Papageorgiou, Dimitris; Vourvachaki, Evangelia (2021). How does the ZLB affect the properties of alternative exchange rate systems? Oxford economic papers, 73(4), pp. 1404-1426. Oxford University Press 10.1093/oep/gpab031

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Abstract We use a standard, two-country Dynamic Stochastic General Equilibrium (DSGE) model with multiple shocks and a Taylor rule to study the effects of the Zero Lower Bound (ZLB) under alternative international monetary arrangements. Whether the ZLB constraint plays a stabilizing or destabilizing role depends on the exchange rate regime and the type of shock. Different shocks may favor different regimes, and the ZLB may lead to a reversal of the ranking of the regimes for some shocks, especially domestic ones. Notwithstanding such individual shock reversals, when considering the groups of external or domestic shocks or all shocks together in a typical economy that stochastically alternates between the ZLB and the non-ZLB states, we find that the introduction of a ZLB constraint does not by itself suffice to make policymakers rethink their choice of the exchange rate regime.

Item Type:

Journal Article (Original Article)

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Economics

UniBE Contributor:

Dellas, Harris

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

ISSN:

0030-7653

Publisher:

Oxford University Press

Language:

English

Submitter:

Dino Collalti

Date Deposited:

27 Jan 2022 14:05

Last Modified:

05 Dec 2022 16:00

Publisher DOI:

10.1093/oep/gpab031

BORIS DOI:

10.48350/163349

URI:

https://boris.unibe.ch/id/eprint/163349

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