Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
966015 | Journal of Macroeconomics | 2010 | 22 Pages |
Abstract
The paper analyzes the choice of an exchange rate regime for a small open economy indebted in foreign-currency, incorporating the financial accelerator. Conventional wisdom suggests that floating regimes should insulate the economy from real shocks. I show that this result depends on the degree of openness of the economy and foreign-currency indebtedness and, in fact, does not hold for relatively closed economies. The transmission mechanism relies on non-linearities in the impact of unanticipated real price changes on the external finance premium in the spirit of Fisher (1933).
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Authors
Nicolas E. Magud,