Flexible exchange rates as shock absorbers

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...

Flexible exchange rates and insulation : A reexamination

Electromagnetic Shock Absorbers

Automobiles and trucks have shock absorbers to damp out the vibration experienced due to roughness of the roads. However, energy in conventional shock absorbers gets dissipated as heat and not used in any way. Regenerative electromagnetic shock absorbers provide means for recovering the energy dissipated in shock absorbers. Electromagnetic shock absorbers for potential use in vehicles are fabri...

The Case for Flexible Exchange Rates in a Great Recession

We analyze macroeconomic stabilization in a small open economy which faces a large recession in the rest of the world. We show that for the economy to remain isolated from the shock, the exchange rate must depreciate not only to offset the collapse in external demand, but also to decouple domestic prices from deflation in the rest of the world. If monetary policy becomes constrained by the zero...

Shock Effects on Stocks, Bonds, and Exchange Rates

Tick data and newswire searches are used to find events that led to large and rapid changes in a stock future, a bond future, and three exchange rate futures. Knowledge of these events may be useful in future work. They have the advantages that they are truly surprises and that the sign of their effect on each financial market is known. The events are used in this study to analyze the effects o...