Segmented Asset Markets and Optimal Exchange Rate Regimes

Amartya Lahiri, Rajesh Singh () and Carlos Végh ()

No 13154, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: F3 F40 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-mon
Date: 2007-06
Note: IFM
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Related works:
Working Paper: Segmented Asset Markets and Optimal Exchange Rate Regimes (2004)
Journal Article: Segmented asset markets and optimal exchange rate regimes (2007)
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