Managing Currency Pegs

Martín Uribe () and Schmitt-Grohé, Stephanie
Authors registered in the RePEc Author Service: Stephanie Schmitt-Grohe

No 8983, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Capital controls; Currency pegs; Downward nominal wage rigidity; Pecuniary externality. (search for similar items in EconPapers)
JEL-codes: E31 E62 F41 (search for similar items in EconPapers)
Date: 2012-05
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Journal Article: Managing Currency Pegs (2012)
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