On the Relevance of Exchange Rate Regimes for Stabilization Policy

Pedro Teles, Isabel Correia () and Bernardino Adao
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Bernardino Adao: Banco de Portugal

No 616, 2007 Meeting Papers from Society for Economic Dynamics

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 and regardless of the incompleteness of international financial markets. The only relevant condition is on labor mobility. The results can be summarized with the claim that every currency area is an optimal currency area, provided labor is not mobile across countries.

Date: 2007
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Related works:
Journal Article: On the relevance of exchange rate regimes for stabilization policy (2009)
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)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed007:616

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