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Exchange Rate Regimes, Location, and Specialization

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  • Luca Antonio Ricci

    (International Monetary Fund)

Abstract

This 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

Suggested Citation

  • Luca Antonio Ricci, 2006. "Exchange Rate Regimes, Location, and Specialization," IMF Staff Papers, Palgrave Macmillan, vol. 53(1), pages 1-3.
    • Handle: RePEc:pal:imfstp:v:53:y:2006:i:1:p:3
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    Citations

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    Cited by:

    1. Ricci, Luca Antonio, 2008. "A Model of an Optimum Currency Area," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-31.
    2. Saeed Rasekhi & Shideh Sadat Shojaee, 2012. "Determinant factors of vertical intra industry trade in agricultural sector: A study of Iran and her main trading partners," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 58(4), pages 180-190.
    3. Albagli, Elias & Calani, Mauricio & Hadzi-Vaskov, Metodij & Marcel, Mario & Ricci, Luca Antonio, 2020. "Comfort in Floating: Taking Stock of Twenty Years of Freely-Floating Exchange Rate in Chile," CEPR Discussion Papers 14967, C.E.P.R. Discussion Papers.

    More about this item

    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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