Firm turnover in the export market and the case for fixed exchange rate regime

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Title: Firm turnover in the export market and the case for fixed exchange rate regime
ISBN: 978-952-323-309-6
Author: Hamano, Masashige ; Pappadà, Francesco
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2020
Series number: 1/2020
Year of publication: 2020
Publication date: 7.1.2020
Pages: 51
Subject (yso): rahapolitiikka; valuuttakurssit; yritykset; vienti; valuuttapolitiikka
Keywords: mallit
JEL: F32; F41; E40
Other keywords: monetary policy; exchange rate regime; firm heterogeneity
Abstract: This paper revisits the case for exible 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.
Rights: https://helda.helsinki.fi/bof/copyright


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