Pegs, Downward Wage Rigidity, and Unemployment: the Role of Financial Structure
This paper studies the relationship between financial structure and the welfare consequences of fixed exchange rate regimes in small open emerging economies with downward nominal wage rigidity. Two surprising results are obtained. First, that a pegging economy might be better off with a closed capital account than with an open one. Second, that the welfare gain from switching from a peg to the optimal (full-employment) monetary policy might be greater in financially open economies than in financially closed ones.
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- Macarena García & Alberto Naudon, 2012. "Dinámica Laboral en Chile," Working Papers Central Bank of Chile 659, Central Bank of Chile.
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