Segmented Asset Markets and Optimal Exchange Rate Regimes

Rajesh Singh (), Amartya Lahiri and Carlos Vegh

Staff General Research Papers Archive from Iowa State University, Department of Economics

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 the context of this environment we show that flexible exchange rates are optimal under monetary shocks and fixed exchange rates are optimal under real shocks.

Date: 2007-05-01
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Published in Journal of International Economics, May 2007, vol. 72 no. 1, pp. 1-21

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Related works:
Journal Article: Segmented asset markets and optimal exchange rate regimes (2007)
Working Paper: Segmented Asset Markets and Optimal Exchange Rate Regimes (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:11446

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