Fixed exchange rates and sticky prices in emerging markets
In the wake of financial crises in emerging markets, firmly fixed exchange rates and even dollarization have been advocated as a means to decrease vulnerability. There are many important new issues related to fixing the exchange rate and financial vulnerability, but one long-time vital concern for a fixed currency regime persists: the flexibility of domestic prices and wages. In the presence of high nominal rigidities, fixed rates can lead to large output costs in the aftermath of negative macroeconomic shocks. Employing a method previously applied to the gold standard fixed rate regime, we find generally flat aggregate supply curves in a sample of five emerging markets. This indicates substantial inflexibility of prices, and large losses in terms of income and employment in a fixed exchange rate regime subsequent to negative shocks. © 2003 John Wiley & Sons, Ltd.
Volume (Year): 15 (2003)
Issue (Month): 5 ()
|Contact details of provider:|| Web page: http://www3.interscience.wiley.com/journal/5102/home|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- G. Bird & R. Rajan, 2001. "Would International Currency Taxation and Currency Stabilisation in Developing Countries?," Journal of Development Studies, Taylor & Francis Journals, vol. 37(3), pages 21-38.
- Dooley, Michael P, 2000.
"A Model of Crises in Emerging Markets,"
Royal Economic Society, vol. 110(460), pages 256-72, January.
- Michael P. Dooley, 1998. "A model of crises in emerging markets," International Finance Discussion Papers 630, Board of Governors of the Federal Reserve System (U.S.).
- Michael P. Dooley, 1997. "A Model of Crises in Emerging Markets," NBER Working Papers 6300, National Bureau of Economic Research, Inc.
- Michael D. Bordo, 1993.
"The gold standard, Bretton Woods and other monetary regimes: a historical appraisal,"
Federal Reserve Bank of St. Louis, issue Mar, pages 123-191.
- Michael Bordo, 1993. "The Gold Standard, Bretton Woods and other Monetary Regimes: An Historical Appraisal," NBER Working Papers 4310, National Bureau of Economic Research, Inc.
- Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998.
"Paper tigers? A model of the Asian crisis,"
9822, Federal Reserve Bank of New York.
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- Guillermo A. Calvo & Carmen M. Reinhart, 2002.
"Fear of Floating,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 117(2), pages 379-408.
- Keating, John W & Nye, John V, 1998. "Permanent and Transitory Shocks in Real Output: Estimates from Nineteenth-Century and Postwar Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(2), pages 231-51, May.
- Olivier Jean Blanchard & Danny Quah, 1988.
"The Dynamic Effects of Aggregate Demand and Supply Disturbances,"
NBER Working Papers
2737, National Bureau of Economic Research, Inc.
- Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September.
- Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
- Morris Goldstein (ed.), 1999. "Safeguarding Prosperity in a Global Financial System: The Future International Financial Architecture," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 50.
- Guillermo A. Calvo, 2001.
"Capital markets and the exchange rate with special reference to the dollarization debate in Latin America,"
Federal Reserve Bank of Cleveland, pages 312-338.
- Calvo, Guillermo A, 2001. "Capital Markets and the Exchange Rate with Special Reference to the Dollarization Debate in Latin America," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 312-34, May.
- Eichengreen, Barry, 2002. "When to Dollarize," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 1-24, February.
- Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
- Paul R. Krugman, 2000. "Crises : the price of globalization?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 75-106.
When requesting a correction, please mention this item's handle: RePEc:wly:jintdv:v:15:y:2003:i:5:p:575-586. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.