Department of Economics
Iowa State University
280D Heady Hall
Ames, IA 50011
Institutional Affiliation: Iowa State University
Information about this author at RePEc
NBER Working Papers and Publications
|June 2007||Segmented Asset Markets and Optimal Exchange Rate Regimes|
with , : w13154
This paper revisits the issue of the optimal exchange rate regime in a flexible price environment. The key innovation is that we analyze this question in the context of environments where only a fraction of agents participate in asset market transactions (i.e., asset markets are segmented). Under this friction, alternative exchange rate regimes have different implications for real allocations in the economy. In particular -- and contrary to standard results under sticky prices -- we show that flexible exchange rates are optimal under monetary shocks and fixed exchange rates are optimal under real shocks.
Published: Lahiri, Amartya & Singh, Rajesh & Vegh, Carlos, 2007. "Segmented asset markets and optimal exchange rate regimes," Journal of International Economics, Elsevier, vol. 72(1), pages 1-21, May. citation courtesy of
|November 2006||Optimal exchange rate regimes: Turning Mundell-Fleming's dictum on its head|
with , : w12684
A famous dictum in open economy macroeconomics -- which obtains in the Mundell-Fleming world of sticky prices and perfect capital mobility -- holds that the choice of the optimal exchange rate regime should depend on the type of shock hitting the economy. If shocks are predominantly real, a flexible exchange rate is optimal, whereas if shocks are mainly monetary, a fixed exchange rate is optimal. There is no obvious reason, however, why this paradigm should be the most appropriate one to think about this important issue. Arguably, asset market frictions may be as pervasive as goods market frictions (particularly in developing countries). In this light, we show that in a model with flexible prices and asset market frictions, the Mundell-Fleming dictum is turned on its head: flexible rate...
Published: Amartya Lahiri & Rajesh Singh & Carlos A. Vegh, 2007.
"Optimal Exchange Rate Regimes: Turning Mundell-Fleming's Dictum on its Head,"
Faculty of economics, Department of Economics, vol. 54(3), pages 249-270, September.
citation courtesy of