The notion that flexible exchange rates insulate a country from foreign shocks is well grounded in theory, from the … alters the spillovers: it does not-flexible exchange rates fail to provide insulation against euro area shocks. This result … the workhorse open-economy model can account for the lack of insulation under a float, assuming that central banks respond …

to the euro - the insulation puzzle. Unconditionally, however, currency volatility is significantly higher for floaters …. A state-of-the-art open-economy model can fit our conditional evidence on lack of insulation, provided monetary policy …