Collard, Fabrice; Dellas, Harris (2006). Price rigidity and the selection of the exchange rate regime. Open economies review, 17(1), pp. 5-26. Dordrecht: Springer Science + Business Media B.V 10.1007/s11079-006-5212-3
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We evaluate and qualify Friedman's, 1953, “case for flexible exchange rates” in the presence of sticky prices in a two country model. We find that a flexible regime performs indeed better when the degree of nominal price rigidity is high while a bilateral peg does better when prices are fairly flexible. This result obtains independent of whether monetary policy is activistic or not and is mostly due to the negative relationship between employment and productivity shocks when prices are relatively sluggish (Gali, 1999). A unilateral peg tends to produce the lowest level of world welfare but it sometimes represents the best monetary arrangement for the pegger.
Item Type: |
Journal Article (Original Article) |
|---|---|
Division/Institute: |
03 Faculty of Business, Economics and Social Sciences > Department of Economics |
UniBE Contributor: |
Collard, Fabrice, Dellas, Harris |
ISSN: |
0923-7992 |
Publisher: |
Springer Science + Business Media B.V |
Language: |
English |
Submitter: |
Factscience Import |
Date Deposited: |
04 Oct 2013 14:46 |
Last Modified: |
05 Dec 2022 14:14 |
Publisher DOI: |
10.1007/s11079-006-5212-3 |
Web of Science ID: |
000235062800001 |
BORIS DOI: |
10.48350/19174 |
URI: |
https://boris.unibe.ch/id/eprint/19174 (FactScience: 1594) |
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