Exchange Rate Policy and Firm Heterogeneity

Masashige Hamano and Francesco Pappadà ()
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Francesco Pappadà: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, Banque de France - Banque de France - Banque de France

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Abstract: This paper examines the exchange rate policy in a tractable framework with heterogeneous firms, incomplete financial markets and nominal rigidities. External demand shocks generate exchange rate movements leading to uncertainty in the labor demand of exporter firms. When exporter firms are homogeneous in terms of productivity, a monetary policy response to external demand shocks stabilizes the export market and improves welfare, thus providing a rationale for managed exchange rate policies.

Date: 2023-09
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Published in IMF Economic Review, 2023, 71 (3), pp.759-790. ⟨10.1057/s41308-022-00188-2⟩

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Journal Article: Exchange Rate Policy and Firm Heterogeneity (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-04346913

DOI: 10.1057/s41308-022-00188-2

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