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Exchange Rate Regimes and Location

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  • Mr. Luca A Ricci

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, two-differentiated-goods monetary model, demand, supply, and monetary (as well as exchange rate) shocks arise after wages are set and prices are optimally chosen. The paper finds that countries are more specialized under flexible than fixed rates, and that the pattern of specialization is not uniquely defined by trade models but depends also on the exchange rate regime. The adoption of fixed exchange rates endogenously increases the desirability of this currency area by reducing the shock asymmetry. These results also shed light on the effects of exchange rate variability on trade.

Suggested Citation

  • Mr. Luca A Ricci, 1997. "Exchange Rate Regimes and Location," IMF Working Papers 1997/069, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1997/069
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    Cited by:

    1. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-1025, July.
    2. 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.
    3. Loisel, Olivier, 2005. "Endogenously Asymmetric Demand Shocks in a Monetary Union," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 20, pages 746-770.
    4. Fabio Ghironi & Marc J. Melitz, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 865-915.
    5. Agnès Bénassy-Quéré & Lionel Fontagné & Amina Lahrèche-Revil, 1999. "Exchange Rate Strategies in the Competition for Attracting FDI," Working Papers 1999-16, CEPII research center.
    6. Salvador Barrios & Marius Brülhart & Robert J.R. Elliott & Marianne Sensier, 2003. "A Tale of Two Cycles: Co‐Fluctuations Between UK Regions and the Euro Zone," Manchester School, University of Manchester, vol. 71(3), pages 265-292, June.
    7. Tille, Cedric, 2006. "On the distributional effects of exchange rate fluctuations," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1207-1225, December.
    8. Eduard Hochreiter & Pierre Siklos, 2004. "From Floating to Monetary Union: The Economic Distance between Exchange Rate Regimes," SUERF Studies, SUERF - The European Money and Finance Forum, number 2004/5 edited by Morten Balling, May.
    9. Christian Aubin & Camélia Turcu, 2013. "The Impact of Exchange Rate Regimes on Production Structures Across Countries: the European Case," Working Papers hal-00961835, HAL.
    10. Philip R. Lane, 2002. "Monetary-Fiscal Interactions in an Uncertain World: Lessons for European Policymakers," Trinity Economics Papers 200213, Trinity College Dublin, Department of Economics.
    11. Lionel Fontagné & Michael Freudenberg, 1999. "Endogenous Symmetry of Shocks in a Monetary Union," Open Economies Review, Springer, vol. 10(3), pages 263-287, July.
    12. Benassy-Quere, AgnEs & Fontagne, Lionel & LahrEche-Revil, Amina, 2001. "Exchange-Rate Strategies in the Competition for Attracting Foreign Direct Investment," Journal of the Japanese and International Economies, Elsevier, vol. 15(2), pages 178-198, June.
    13. Lionel Fontagné & Christophe Deissenberg, 1997. "Présentation générale," Économie et Prévision, Programme National Persée, vol. 128(2), pages 1-14.
    14. Lafrance, Robert & St-Amant, Pierre, 2000. "Les zones monétaires optimales," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(4), pages 577-612, décembre.

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