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The case for flexilbe exchange rates in a great recession

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dc.contributor.author Corsetti, Giancarlo
dc.contributor.author Kuester, Keith
dc.date.accessioned 2016-09-15T13:14:25Z
dc.date.available 2016-09-15T13:14:25Z
dc.date.issued 2016-06
dc.identifier.uri http://hdl.handle.net/10230/27296
dc.description.abstract We analyze macroeconomic stabilization in a small open economy which faces a large recession in the rest of the world. We show analytically that for the economy to remain isolated from the external shock, the exchange rate must depreciate not only to offset the collapse in external demand, but also to decouple domestic prices from the deflation in the rest of the world. If monetary policy becomes constrained by the zero lower bound, the scope of exchange rate depreciation is limited and the economy is no longer isolated from the shock. Still in this case there is a /benign coincidence": government spending is particularly effective in stabilizing economic activity. Under fixed exchange rates, instead, the impact of external shock is particularly severe and the effectiveness of fiscal policy reduced.
dc.description.sponsorship The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries ADEMU Working Paper Series;24
dc.rights This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
dc.rights.uri https://creativecommons.org/licenses/by/4.0/
dc.title The case for flexilbe exchange rates in a great recession
dc.type info:eu-repo/semantics/workingPaper
dc.subject.keyword External shock
dc.subject.keyword Great recession
dc.subject.keyword Flexible exchange rates
dc.subject.keyword Zero lower bound
dc.subject.keyword Fiscal multiplier
dc.subject.keyword Fixed exchange rates
dc.subject.keyword Benign coincidence
dc.relation.projectID info:eu-repo/grantAgreement/EC/H2020/649396
dc.rights.accessRights info:eu-repo/semantics/openAccess


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