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Extensive and intensive margins and the choice of exchange rate regimes

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  • Masashige Hamano

    ()
    (Sophia University, Tokyo)

  • Pierre M. Picard

    ()
    (CREA, Universit├ę de Luxembourg)

Abstract

This paper studies how the choice of fixed or flexible exchange rate regimes is affected by the existence of intensive and extensive margins. We study two models where firms enter during or before each period of production. We show how the the choice of those regimes depend on the level and the volatily of the intensive and extensive margins as well as on the congruence between consumers' preferences and the supply and diversity of products. We show that fixed exchange rate regimes are preferred for high enough labor supply elasticities. Fixed exchange rate regimes are unambigously better when entry occurs at the same time as production in each period. Fixed exchange rate regimes are less attractive in the presence of production lags and higher love of product diversity.

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File URL: http://wwwfr.uni.lu/content/download/64107/808963/file/2013-18%20-%20Extensive%20and%20intensive%20margins%20and%20the%20choice%20of%20exchange%20rate%20regimes.pdf
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Bibliographic Info

Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 13-18.

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Date of creation: 2013
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Handle: RePEc:luc:wpaper:13-18

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Keywords: firm entry; product diversity; exchange rate system;

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  1. Giancarlo Corsetti & Paolo Pesenti, 2001. "International dimensions of optimal monetary policy," Staff Reports, Federal Reserve Bank of New York 124, Federal Reserve Bank of New York.
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  15. Hamano, Masashige, 2013. "The consumption-real exchange rate anomaly with extensive margins," Journal of International Money and Finance, Elsevier, Elsevier, vol. 36(C), pages 26-46.
  16. Hamano Masashige, 2012. "International equity and bond positions in a DSGE model with variety risk in consumption," CREA Discussion Paper Series 12-05, Center for Research in Economic Analysis, University of Luxembourg.
  17. Naknoi, Kanda, 2008. "Real exchange rate fluctuations, endogenous tradability and exchange rate regimes," Journal of Monetary Economics, Elsevier, Elsevier, vol. 55(3), pages 645-663, April.
  18. Pierre M. Picard & Tim Worrall, 2009. "Currency Unions and International Assistance," CREA Discussion Paper Series 09-01, Center for Research in Economic Analysis, University of Luxembourg.
  19. Kanda Naknoi, 2008. "The Benefit of Exchange Rate Flexibility, Trade Openness and Extensive Margin," Purdue University Economics Working Papers 1215, Purdue University, Department of Economics.
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