We derive the optimal exchange rate policy for a small open economy subject to terms-of-trade shocks. Firm owners and workers are risk averse but workers more so. Wages are given or partially indexed in the short run, and capital markets are imperfect. The government sets the exchange rate to...

This working paper was written by Gabriel Wu (Hong Kong Monetary Authority) and Wilson Wan (Hong Kong Monetary Authority).Despite the increasing efforts to better understand the financial consequences of climate change, how climate-related financial risks could spill over across borders largely...