Foreign Exchange Regimes in (Normal Times and) Times of War: Insights from Ukraine

Oliver de Groot and Yevhenii Skok

No 20001, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: On February 24, 2022, as Russia invaded, the National Bank of Ukraine switched from a flexible to a fixed exchange rate regime. Was this policy response optimal? To answer this, we develop an open-economy model with both nominal rigidities and frictions in borrowing on international financial markets. We find that the carefully calibrated model can rationalize the NBU’s decision: the optimal response to small shocks is to allow exchange rate flexibility, whereas in response to large shocks—such as an invasion—currency depreciation is suboptimal. For robustness, we consider tradable endowment, risk-premium, and non-tradable supply shocks, and add subsistence consumption.

Keywords: Currency crises; Exchange rates; Monetary policy; Emerging markets (search for similar items in EconPapers)
JEL-codes: E44 E52 F31 F41 G01 (search for similar items in EconPapers)
Date: 2025-03
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP20001 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:20001

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP20001

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().