Managing Currency Pegs

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 prudential, whereas first-best solutions are not.

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Year of publication:	2012-05
Authors:	Schmitt-Grohé, Stephanie ; Uribe, Martín
Institutions:	C.E.P.R. Discussion Papers
Subject:	capital controls \| Currency pegs \| downward nominal wage rigidity \| pecuniary externality

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Extent:	application/pdf
Series:	CEPR Discussion Papers.
Type of publication:	Book / Working Paper
Notes:	Number 8983
Classification:	E31 - Price Level; Inflation; Deflation ; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation ; F41 - Open Economy Macroeconomics
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011083700