Portal de Periódicos da CAPES

Trade Openness and Exchange Rate Regimes

2014; Wiley; Volume: 46; Issue: 8 Linguagem: Alemão

10.1111/jmcb.12162

1538-4616

Ondra Kamenik, Michael Kumhof,

Economic Theory and Policy

Journal of Money, Credit and BankingVolume 46, Issue 8 p. 1657-1686 Article Trade Openness and Exchange Rate Regimes ONDRA KAMENIK, ONDRA KAMENIKSearch for more papers by this authorMICHAEL KUMHOF, MICHAEL KUMHOFSearch for more papers by this author ONDRA KAMENIK, ONDRA KAMENIKSearch for more papers by this authorMICHAEL KUMHOF, MICHAEL KUMHOFSearch for more papers by this author First published: 21 November 2014 https://doi.org/10.1111/jmcb.12162Citations: 6 The views expressed here are those of the authors, and should not be attributed to the International Monetary Fund, its Executive Board, its management, or any other institution with which the authors are affiliated. The authors thank Guillermo Calvo, Jeffrey Frankel, Philip Lane, and seminar participants at the NBER, the University of Houston, the University of Virginia, the IMF, and the Inter-American Development Bank for helpful comments. Carlos Diaz Alvarado provided outstanding research assistance. A major part of this research was completed while Michael Kumhof visited the Research Department of the Inter-American Development Bank, whose support is gratefully acknowledged. Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onEmailFacebookTwitterLinkedInRedditWechat Abstract The paper evaluates the net welfare gains of inflation targeting over a fixed exchange rate as a function of a country's trade openness, using a multisectoral structural model calibrated to Chile. For most calibrations with separable preferences, net welfare gains are increasing in trade openness. The reason is that in more open economies terms of trade shocks, which favor inflation targeting, become quantitatively more important, while price markup shocks in the imperfectly competitive nontradables sector, which favor exchange rate targeting, become less important. The most important exception is heavily indebted countries, where net welfare gains are decreasing in trade openness. Literature Cited Benigno, Gianluca, and Pierpaolo Benigno. (2003) "Price Stability in Open Economies." Review of Economic Studies, 70, 743–64. Burstein, Ariel, Martin Eichenbaum, and Sergio Rebelo. (2005) "Large Devaluations and the Real Exchange Rate." Journal of Political Economy, 113, 742–84. Calvo, Guillermo A. (1983) "Staggered Prices in a Utility-Maximizing Framework." Journal of Monetary Economics, 12, 383–98. Calvo, Guillermo A., and Carmen M. Reinhart. (2001) " Fixing for Your Life." In Brookings Trade Forum 2000, edited by Susan M. Collins and Dani Rodrik, pp. 1–38. Washington, DC: Brookings Institution. Calvo, Guillermo A., and Carmen M. Reinhart. (2002) "Fear of Floating." Quarterly Journal of Economics, 117, 379–408. Campa, José, and Linda Goldberg. (2005) "Exchange Rate Pass-Through into Imports Prices." Review of Economics and Statistics, 87, 679–90. Corsetti, Giancarlo. (2006) " Openness and the Case for Flexible Exchange Rates." CEPR Discussion Paper No. 5612. Corsetti, Giancarlo, and Paolo Pesenti. (2005) "International Dimensions of Optimal Monetary Policy." Journal of Monetary Economics, 52, 281–305. Devereux, Michael, and Charles Engel. (2003) "Monetary Policy in the Open Economy Revisited: Price Setting and Exchange-Rate Flexibility." Review of Economic Studies, 70, 765–83. Duarte, Margarida, and Maurice Obstfeld. (2008) "Monetary Policy in the Open Economy Revisited: The Case for Exchange Rate Flexibility Restored." Journal of International Money and Finance, 27, 949–57. Elekdag, Selim, and Ivan Tchakarov. (2007) "Balance Sheets, Exchange Rate Policy, and Welfare." Journal of Economic Dynamics and Control, 31, 3986–4015. Erceg, Christopher, Dale Henderson, and Andrew Levin. (2000) "Optimal Monetary Policy with Staggered Wage and Price Contracts." Journal of Monetary Economics, 46, 281–313. Fleming, John M. (1962) "Domestic Financial Policies under Fixed and Floating Exchange Rates." IMF Staff Papers, 9, 369–79. Friedman, Milton. (1953) " The Case for Flexible Exchange Rates." In Essays in Positive Economics, pp. 157–203. Chicago: University of Chicago Press. Galí, Jordi, and Tommaso Monacelli. (2005) "Monetary Policy and Exchange Rate Volatility in a Small Open Economy." Review of Economic Studies, 72, 707–34. Medina, Juan P., and Claudio Soto. (2007) " Copper Price, Fiscal Policy and Business Cycle in Chile." Central Bank of Chile Working Paper No. 458. Goldberg, Pinelopi, and Michael Knetter. (1997) "Goods Prices and Exchange Rates: What Have We Learned?" American Economic Review, 35, 1243–72. Greenwood, Jeremy, Zvi Hercowitz, and Gregory Huffman. (1988) "Investment, Capacity Utilization, and the Real Business Cycle." American Economic Review, 78, 402–17. Hau, Harald. (2000) "Exchange Rate Determination: The Role of Factor Price Rigidities and Nontradables." Journal of International Economics, 50, 421–47. Hau, Harald. (2002) "Real Exchange Rate Volatility and Economic Openness: Theory and Evidence." Journal of Money, Credit and Banking, 34, 611–30. Juillard, Michel, and Ondra Kamenik. (2004) " Solving Stochastic Dynamic Equilibrium Models: A k-Order Perturbation Approach." http://www.cepremap.cnrs.fr/dynare/. Juillard, Michel, and Ondra Kamenik. (2005) " Solving SDGE Models: Approximation about the Stochastic Steady State." Working Paper, CEPREMAP and Czech National Bank. King, Robert, Charles Plosser, and Sergio Rebelo. (1988a) "Production, Growth and Business Cycles: I. The Basic Neoclassical Model." Journal of Monetary Economics, 21, 195–232. King, Robert, Charles Plosser, and Sergio Rebelo. (1988b) "Production, Growth and Business Cycles: II. New Directions." Journal of Monetary Economics, 21, 309–41. Kollmann, Robert. (2004) "Welfare Effects of a Monetary Union: The Role of Trade Openness." Journal of the European Economic Association, 2, 289–301. Lane, Philip R. (1997) "Inflation in Open Economies." Journal of International Economics, 42, 327–47. Lucas, Robert E., Jr. (1987) Models of Business Cycles. Oxford: Basil Blackwell. McKinnon, Ronald. (1963) "Optimum Currency Areas." American Economic Review, 53, 717–25. Mundell, Robert A. (1963) "Capital Mobility and Stabilization Policy under Fixed and Flexible Exchange Rates." Canadian Journal of Economics, 29, 475–85. Obstfeld, Maurice, and Kenneth Rogoff. (2002) "Global Implications of Self-Oriented National Monetary Rules." Quarterly Journal of Economics, 117, 503–35. Schmitt-Grohe, Stephanie, and Martín Uribe. (2003) "Closing Small Open Economy Models." Journal of International Economics, 61, 163–85. Smets, Frank, and Raf Wouters. (2002) "Openness, Imperfect Exchange Rate Pass-Through and Monetary Policy." Journal of Monetary Economics, 49, 947–81. Smets, Frank, and Raf Wouters. (2003) "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area." Journal of the European Economic Association, 1, 1123–75. Smets, Frank, and Raf Wouters. (2007) "Shocks and Frictions in U.S. Business Cycles: A Bayesian DSGE Approach." American Economic Review, 97, 586–606. Sutherland, Alan. (2005) "Cost-Push Shocks and Monetary Policy in Open Economies." Oxford Economic Papers, 57, 1–33. Woodford, Michael. (2003) Interest and Prices: Foundations of a Theory of Monetary Policy. Princeton, NJ: Princeton University Press. Yun, Tack. (1996) "Nominal Price Rigidity, Money Supply Endogeneity, and Business Cycles." Journal of Monetary Economics, 37, 345–70. Citing Literature Volume46, Issue8December 2014Pages 1657-1686 ReferencesRelatedInformation