Exchange Rate Regimes, Location, and Specialization
AbstractThis paper investigates the effects of fixed versus flexible exchange rates on firms' location choices and on countries' specialization patterns. In a two-country, twodifferentiated-goods monetary model, uncertainty arises after wages are set and prices are optimally chosen. The paper shows that countries are more specialized under flexible than fixed rates, which indicates that the pattern of specialization is not uniquely defined by trade models but also depends on the exchange rate regime. The creation of a currency area endogenously increases the desirability of such an area by reducing the asymmetry of shocks across member countries. The results also shed light on the effects of exchange rate variability on trade. Copyright 2006, International Monetary Fund
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal IMF Staff Papers.
Volume (Year): 53 (2006)
Issue (Month): 1 ()
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Find related papers by JEL classification:
- F1 - International Economics - - Trade
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
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