This paper examines the relationship between the exchange rate regime and trade flows using a general equilibrium model based on Bacchetta and van Wincoop (AER, 2000). We show that in general the link between trade and the exchange rate regime is ambiguous and that it depends in particular on...

We develop a simple general equilibrium framework to study the effect of the exchange rate system on trade and welfare. An important feature of the model is deviations from purchasing power parity, caused by rigid price setting in buyers' currency. We find the following. First, exchange rate...

This paper compares three methods of analyzing exchange rate regimes in East Asia: static analysis, conventional dynamic analysis, and dynamic transition analysis. First we provide quantitative results that both estimated parameters for Thailand and time intervals are applied symmetrically...

In the literature on currency and banking crises it has become the standard procedure to distinguish pure currency crises, pure banking crises and combined ("twin") currency and banking crises. We show theoretically and empirically that a similar differentiation should be chosen with regard to...

It is conventionally held that countries are worse off by forming a monetary union when it comes to macroeconomic stabilization. However, this conventional view relies on assuming that monetary policy is conducted optimally. Relaxing the assumption of optimal monetary policy not only uncovers...

Central banks invest their foreign exchange reserves predominantly in government bonds. The global accumulation of reserves therefore affects the equilibrium in the market for government bonds of reserve currency countries. By means of a panel data analysis we examine the relationship between...