Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/240324 
Year of Publication: 
2020
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 1/2020
Publisher: 
Bank of Finland, Helsinki
Abstract: 
This paper revisits the case for flexible vs. fixed exchange rate regime in a two-country model with firm heterogeneity and nominal wage rigidity under incomplete financial markets. Dampening nominal exchange rate fluctuations simultaneously stabilizes the firm turnover in the export market. When firms are homogeneous and low productive, the fixed exchange rate regime dominates the flexible one because it reduces the fluctuations in labor demand arising from entry and exit of exporters following a demand shock. We also show that an alternative regulation policy in the export market does not rule out the possible adoption of a managed floating regime.
Subjects: 
monetary policy
exchange rate regime
firm heterogeneity
JEL: 
F32
F41
E40
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-309-6
Document Type: 
Working Paper

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