Managing Currency Pegs
- (pp. 192-97)
AbstractThe 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.
CitationSchmitt-Grohé, Stephanie, and Martín Uribe. 2012. "Managing Currency Pegs." American Economic Review, 102 (3): 192-97. DOI: 10.1257/aer.102.3.192
- F33 International Monetary Arrangements and Institutions
- E52 Monetary Policy