On the relevance of exchange rate regimes for stabilization policy

Bernardino Adao (), Isabel Correia () and Pedro Teles

Journal of Economic Theory, 2009, vol. 144, issue 4, 1468-1488

Abstract: This paper assesses the relevance of the exchange rate regime for stabilization policy. Using both fiscal and monetary policy, we conclude that the exchange rate regime is irrelevant. This is the case independently of the severity of price rigidities, independently of asymmetries across countries in shocks and transmission mechanisms. The only relevant conditions are on the mobility of labor and financial assets. The results can be summarized with the claim that every currency area is an optimal currency area. However, with labor mobility or tradable state-contingent assets, additional policy instruments would be required to establish the irrelevance result.

Keywords: Optimal; currency; areas; Monetary; union; Fixed; exchange; rates; Fiscal; and; monetary; policy; Stabilization; policy; Labor; mobility; Nominal; rigidities (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022-0531(09)00030-1
Full text for ScienceDirect subscribers only

Related works:
Working Paper: On the Relevance of Exchange Rate Regimes for Stabilization Policy (2007)
Working Paper: On the Relevance of Exchange Rate Regimes for Stabilization Policy (2006)
Working Paper: On the Relevance of Exchange Rate Regimes for Stabilization Policy (2006)
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:eee:jetheo:v:144:y:2009:i:4:p:1468-1488

Access Statistics for this article

Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell

More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Catherine Liu ().