Can endogenous changes in price flexibility alter the relative welfare performance of exchange rate regimes?
By: Ozge Senay, Alan Sutherland.
Contributors: Sutherland, Alan.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 11092.; Working paper series (National Bureau of Economic Research) -- working paper no. 11092.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 22
Subjects: Foreign exchange rates -- Econometric models; Monetary policy
Description: "A dynamic general equilibrium model of a small open economy is presented where agents may choose the frequency of price changes. A fixed exchange rate is compared to inflation targeting and money targeting. A fixed rate generates more price flexibility than the other regimes when the expenditure switching effect is relatively weak, while money targeting generates more flexibility when the expenditure switching effect is strong. These endogenous changes in price flexibility can lead to changes in the welfare performance of regimes. But, for the model calibration considered here, the extra price flexibility generated by a peg does not compensate for the loss of monetary independence. Inflation targeting yields the highest welfare level despite generating the least priceflexibility of the three regimes considered"--National Bureau of Economic Research web site.
Notes: "January 2005."

Includes bibliographical references (p. 20-22).

Also available in PDF from the NBER world wide web site (www.nber.org).