The case for flexilbe exchange rates in a great recession
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- dc.contributor.author Corsetti, Giancarloca
- dc.contributor.author Kuester, Keithca
- dc.date.accessioned 2016-09-15T13:14:25Z
- dc.date.available 2016-09-15T13:14:25Z
- dc.date.issued 2016-06
- 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.ca
- 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/pdfca
- dc.identifier.uri http://hdl.handle.net/10230/27296
- dc.language.iso engca
- dc.relation.ispartofseries ADEMU Working Paper Series;24
- dc.relation.projectID info:eu-repo/grantAgreement/EC/H2020/649396
- 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.ca
- dc.rights.accessRights info:eu-repo/semantics/openAccessca
- dc.rights.uri https://creativecommons.org/licenses/by/4.0/ca
- 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.title The case for flexilbe exchange rates in a great recessionca
- dc.type info:eu-repo/semantics/workingPaperca