How valuable is exchange rate flexibilty?
Subtitle: optimal monetary policy under sectoral shocks
By: Cédric Tille.
Contributors: Federal Reserve Bank of New York.
Series: Staff reports ;; no. 147; Staff reports (Federal Reserve Bank of New York : Online) ;; no. 147.
Publisher: Federal Reserve Bank of New York
Published: 2002
Place of publication: [New York, N.Y.]
Language: eng
Format: Electronic resource
Subjects: Foreign exchange rates.; Industrial productivity.
Description: "The paper explores the optimal monetary policy reaction to productivity shocks in an open economy.  Whereas earlier studies assume that countries specialize in producing particular goods, I enrich the analysis by allowing for incomplete specialization.  I confirm the finding of Obstfeld and Rogoff (2000)--who build on Friedman (1953)--that a flexible exchange rate is highly valuable in delivering the optimal response to country- specific shocks.  Its value is, however, much smaller when shocks are sector-specific, because exchange rate fluctuations then lead to misallocations between different firms within a sector.  The limitation on the value of flexibility is sizable even when specialization is high"--Federal Reserve Bank of New York web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 3/1/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.