Schmitt-Grohé, Stephanie; Uribe, Martín - C.E.P.R. Discussion Papers - 2011
This paper quantifies the costs of adhering to a fixed-exchange-rate arrangement, such as a currency union, for emerging economies. To this end it develops a novel dynamic stochastic disequilibrium model of a small open economy with monetary nonneutrality due to downward nominal wage rigidity....