Segmented asset markets and optimal exchange rate regimes
By: Amartya Lahiri, Rajesh Singh, Carlos A. Vegh.
Contributors: Singh, Rajesh Kumar, 1961-; Végh Gramont, Carlos A., 1958-; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13154.; Working paper series (National Bureau of Economic Research) -- working paper no. 13154.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 30
Subjects: Foreign exchange rates -- Econometric models; Prices -- Econometric models
Description: "This paper revisits the issue of the optimal exchange rate regime in a flexible price environment. The key innovation is that we analyze this question in the context of environments where only a fraction of agents participate in asset market transactions (i.e., asset markets are segmented). Under this friction, alternative exchange rate regimes have different implications for real allocations in the economy. In particular -- and contrary to standard results under sticky prices -- we show that flexible exchange rates are optimal under monetary shocks and fixed exchange rates are optimal under real shocks."--abstract.
Notes: "June 2007"

Includes bibliographical references (p. 29-30).

Also available in PDF from the NBER World Wide Web site (www.nber.org).