Financial crises and exchange rate policy
This paper studies exchange rate policy in a small open economy model featuring an occasionally binding collateral constraint and Fisherian deflation. The goal is to evaluate the performance of alternative exchange rate policies in sudden stop-prone economies. The key element of the analysis is a pe...
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| Tipo de recurso: | artículo |
| Estado: | Versión aceptada para publicación |
| Fecha de publicación: | 2015 |
| País: | España |
| Institución: | Universitat Pompeu Fabra |
| Repositorio: | Repositorio Digital de la UPF |
| OAI Identifier: | oai:repositori.upf.edu:10230/55437 |
| Acceso en línea: | http://hdl.handle.net/10230/55437 http://dx.doi.org/10.1016/j.jinteco.2014.11.009 |
| Access Level: | acceso abierto |
| Palabra clave: | Financial crises Monetary policy Sudden stops Exchange rate regime Nominal wage rigidities Pecuniary externalities |
| Sumario: | This paper studies exchange rate policy in a small open economy model featuring an occasionally binding collateral constraint and Fisherian deflation. The goal is to evaluate the performance of alternative exchange rate policies in sudden stop-prone economies. The key element of the analysis is a pecuniary externality arising from frictions in the international credit markets, which creates a trade-off between price and financial stability. The main result is that depreciating the exchange rate during a financial crisis has a positive impact on welfare, because the stimulus provided by a depreciation sustains asset prices, value of collateral, and access to the international credit markets. |
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