The paper uses a small open economy general-equilibrium model to compare fiscal and nominal exchange rate devaluation with respect to their impact on economic activity and the current account. In particular, it investigates to which extent fiscal devaluation mimics nominal exchange rate...

After the introduction of an exchange rate commitment and an immediate 7% depreciation of the Czech koruna of in 2013, output growth resumed but inflation remained low. Consequently, the Czech National Bank did not return policy to normal for more than three years. Using a time-varying parameter...

We propose a "debt view" to explain the dominant international role of the dollar and provide broad empirical support for it. Within a simple capital structure model in which firms optimally choose the currency composition of their debt, we derive conditions under which all firms issue debt in a...

This paper analyzes the dynamic effects of a fiscal policy shock and its transmission mechanism in a small open economy and compares the responses under different specifications of the utility function. The traditional Mundell-Flemming model tells that fiscal policy is more effective under a peg...

We study whether monetary policy should target the exchange rate in a two-country model with non-atomistic wage setters, non-traded goods and different degrees of exchange-rate pass through. Commitment to an exchange rate target reduces the labor market distortion. Large labor unions anticipate...

This paper examines the stabilization role of the flexible exchange rate in theface of asymmetric shocks for one of the prominent emerging markets and openeconomies, India, using a sign-identified structural Bayesian vector autoregressionmodel over the post reform period 1996-2019. My results...

How are wages set in an open economy? What role is played by demand pressure, international competition, and structural factors in the labour market? How important is nominal wage rigidity and exchange rate policy for the evolution of real wages and competitiveness? To answer these questions, we...

Financial integration of emerging economies is on the rise and so are financial and monetary spillovers, especially those originating from US economic policy decisions and the (related) evolution of the US dollar. We revisit the “trilemma” vs. “dilemma” hypothesis and assess whether, and...

Chile offers an example of a country that has overcome the fear of floating by reducing balance sheet mismatches, enhancing financial market development, as well as improving monetary, fiscal, and political institutions, and strengthening policy credibility. Under the floating regime, Chile's...

We estimate a three-region (DE-REA-RoW) structural macroeconomic model, and we provide a counterfactual on how nominal exchange rate flexibility would have affected the German trade balance (TB) by simulating the shocks of the estimated model under a counterfactual flexible exchange rate regime....