Commercial Policy Under Fixed and Flexible Exchange Rates

Wages, Flexible Exchange Rates, and Macroeconomic Policy*

In an open economy with a floaLing exchange rate, the efficacy of fiscal and monetary policy depends fundamentally on the wage-setting pnxiess. In the canonical models of Mundell and Fleming, monetary expansion raises output via an exchange rate depreciation, while fiscal expansion has no output effect. These results hold only when real wages can be altered by exchange rate movements; if the re...

Exchange Rate Uncertainty and Labour Market Adjustment under Fixed and Flexible Exchange Rates

The standard literature on working time has modelled the decisions of firms in a deterministic framework in which firms can choose between employment and overtime (given mandated standard hours). Contrary to this approach, we follow the real options approach, which allows us to investigate the value to a firm of waiting to adjust labour when the firm ́s revenues in domestic currency are stochast...

Do Fixed Exchange Rates Fetter Monetary Policy ? A Credit

The Bernanke-Blinder credit-view model is expanded to encompass a small, open economy with fixed exchange rates. In contrast to conventional wisdom and traditional models, monetary policy is resurrected as a stabilization tool. Further, various financial sector shocks are shown to have real aggregate demand effects. We show that independent monetary policy actions can ha ve substantive impacts ...

Fiscal Policy and Exchange Rates ∗

This paper examines the dynamics of the nominal exchange rate and fiscal deficits in a continuous time optimising general equilibrium model with finite horizon. It is shown that alternative financing modes of budget deficits imply different patterns of adjustment and that fiscal policy may provide the nominal anchor for the exchange rate. Our major finding is that after a fiscal expansion the r...

Flexible exchange rates and insulation : A reexamination