Fixed exchange rates and trade

A Simple Dynamic General Equilibrium Analysis of the Trade-off Between Fixed and Floating Exchange rates

This paper provides a complete analytical characterization of the positive and normative effects of alternative exchange rate regimes in a simple two-country sticky-price dynamic general equilibrium model with money, technology, and government spending shocks. A central question addressed is whether fixing the exchange rate prevents macroeconomic adjustment in relative prices from occurring, in...

Exchange Rates and the Working Capital Channel of Trade Fluctuations

Global value chains (GVCs) figure prominently in global trade and lie at the intersection of two important themes. The first is the financing requirement for working capital. The second is the prevalence of dollar invoicing in global trade. The upshot of the interaction of these two themes is that the dollar exchange rate emerges as a determinant of GVC activity. Specifically, a stronger dollar...

Production, Trade and Exchange Rates in Large Experimental Economies

We construct experimental economies for the purpose of studying market equilibration. The economies are the most complex laboratory economies studied to date and are “international” in economic structure. The economies have twenty-one markets and due to the fact that they have on the order of 50 agents, the economies are characterized by several hundred equations. In spite of the complexity and...

Real Exchange Rates and Time-Varying Trade Costs

In a recent paper Jacks et al. (2008) advocate a micro-founded measure for bilateral trade costs. We employ this measure and extend two nonlinear models for the real exchange rate so as to re-examine the Purchasing Power Parity hypothesis in the presence of time-varying trade costs. Using data for the dollar-sterling real exchange rate from 1830 to 2005, we provide significant evidence in favor...

Nonlinearity In Exchange Rates and Forecasting