Exchange rate policy and heterogeneity in small open economies

• 成果类型: Article
• 署名作者: Oskolkov, Aleksei
• 署名单位: University of Chicago
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2023.103750
• 发表日期: 2023
• 关键词: Sudden stops; Currency depreciation; Worker heterogeneity; redistribution

摘要

This paper studies the role of exchange rate regimes in shaping the distributional effects of external monetary shocks. I model a small open economy where agents differ in wealth and in exposure to international trade, producing either tradable or non-tradable goods. The central bank responds to a foreign interest rate hike by a monetary tightening to stabilize the exchange rate or lets the currency depreciate, keeping the interest rate low. I find that exchange rate flexibility distributes consumption gains to the poorer agents. The monetary tightening required to stabilize the currency disproportionately affects their disposable income through interest payments on loans and falling wages. Attempts to fix the exchange rate increase consumption inequality. Flexibility also benefits the non-tradable sector because conditions in this sector are more sensitive to domestic demand and sharply deteriorate when domestic interest rates rise.& COPY; 2023 Elsevier B.V. All rights reserved.