Managing Currency Pegs

Stephanie Schmitt-Grohe and Martín Uribe ()

No 18092, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The combination of a fixed exchange rate and downward nominal wage rigidity creates a real rigidity. In turn, this real rigidity makes the economy prone to involuntary unemployment during external crises. This paper presents a graphical analysis of alternative policy strategies aimed at mitigating this source of inefficiency. First- and second-best monetary and fiscal solutions are analyzed. Second-best solutions are found to be prudential, whereas first-best solutions are not.

JEL-codes: F41 (search for similar items in EconPapers)
Date: 2012-05
New Economics Papers: this item is included in nep-mon and nep-opm
Note: IFM
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Published as “Managing Currency Pegs,” (with Mart´ın Uribe), American Economic Review: Papers & Pro- ceedings 102, May 2012, 192-197.

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Journal Article: Managing Currency Pegs (2012)
Working Paper: Managing Currency Pegs (2012)
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