The majority of households across emerging market economies are excluded from the financial markets and cannot smooth consumption. I analyze the implications of this for optimal monetary policy and the corresponding choice of domestic versus external nominal anchor in a small open economy...

We develop a simple model that highlights the costs and benefits of fixed exchange rates as they relate to trade, and show that negative export-price shocks reduce fiscal revenue and increase the likelihood of an expected currency devaluation. Using a new high-frequency data set on...