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Extensive and intensive margins and the choice of exchange rate regimes

Listed author(s):
  • Masashige Hamano

    ()

    (Sophia University, Tokyo)

  • Pierre M. Picard

    ()

    (CREA, Université du Luxembourg)

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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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
Handle: RePEc:luc:wpaper:13-18
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  16. Benassy, Jean-Pascal, 1996. "Taste for variety and optimum production patterns in monopolistic competition," Economics Letters, Elsevier, vol. 52(1), pages 41-47, July.
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  20. Hamano, Masashige, 2015. "International equity and bond positions in a DSGE model with variety risk in consumption," Journal of International Economics, Elsevier, vol. 96(1), pages 212-226.
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