Real exchange rate policy can potentially be utilized to target the trade balance and/or development through capital accumulation. However, the presence of distributional conflict and the trade-off between current and future trade imbalances complicates matters. I show that policy assignment...

According to the two-country full information New Keynesian model with flexible exchange rates, the real exchange rate appreciates in response to an asymmetric negative demand shock at the zero lower bound (ZLB) and exacerbates the adverse macroeconomic effects. This finding requires inflation...

What could be the drivers of low real rates? What are the implications of the Zero Lower Bound for economic policy? To discuss these questions we introduce a full general equilibrium model of the world economy with a simple (2 period) intertemporal structure. The model is simple enough to allow...