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American Economic Review: Vol. 102 No. 3 (May 2012)
AER Volume. 102, Issue 3 | 
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Managing Currency Pegs
Article Citation
Schmitt-Grohé, Stephanie, and
Martín Uribe. 2012. "Managing Currency Pegs."
American Economic Review,
102(3): 192-97.
DOI: 10.1257/aer.102.3.192
DOI: 10.1257/aer.102.3.192
Abstract
The combination of a fixed exchange rate and downward nominal wage rigidity creates a real rigidity. In turn, this real rigidity makes the economy prone to involuntary unemployment during external crises. This paper presents a graphical analysis of alternative policy strategies aimed at mitigating this source of inefficiency. First- and second-best monetary and fiscal solutions are analyzed. Second-best solutions are prudential, whereas first-best solutions are not.
Article Full-Text Access
Full-text Article
Authors
Schmitt-Grohé, Stephanie (Columbia U)
Uribe, Martín (Columbia U)
Uribe, Martín (Columbia U)
JEL Classifications
F33: International Monetary Arrangements and Institutions
E52: Monetary Policy
E52: Monetary Policy
