Expenditure switching versus real exchange rate stabilization: Competing objectives for exchange rate policy

• 成果类型: Article
• 署名作者: Devereux, Michael B.; Engel, Charles
• 署名单位: University of British Columbia; University of Wisconsin System; University of Wisconsin Madison
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2006.12.013
• 发表日期: 2007
• 页码: 2346-2374
• 关键词: Exchange rates; monetary policy; Real exchange rate; Terms of trade

摘要

This paper develops a view of exchange rate policy as a trade-off between the desire to smooth fluctuations in real exchange rates so as to reduce distortions in consumption allocations, and the need to allow flexibility in the nominal exchange rate so as to facilitate terms of trade adjustment. We show that optimal nominal exchange rate volatility will reflect these competing objectives. The key determinants of how much the exchange rate should respond to shocks will depend on the extent and source of price stickiness, the elasticity of substitution between home and foreign goods, and the amount of home bias in production. Quantitatively, we find the optimal exchange rate volatility should be significantly less than would be inferred based solely on terms of trade considerations. Moreover, we find that the relationship between price stickiness and optimal exchange rate volatility may be non-monotonic. (c) 2007 Elsevier B.V. All rights reserved.