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Francesco PAPPADA (PSE) "Optimal exchange rate policy and firm dynamics"

November 16, 2020 @ 12:15 pm - 1:30 pm | Organizers: Julien PRAT, Edouard CHALLE

Time: 12:15pm – 13:30 pm
Date: 16 th of November 2020
Francesco PAPPADA (PSE) “Optimal exchange rate policy and firm dynamics”
Abstract : This paper examines the optimal exchange rate policy in a two-country model with firm heterogeneity and nominal wage rigidity under incomplete financial markets. In our setting, a flexible exchange rate does not fully absorb the fluctuations in external demand. We show that a monetary policy intervention aimed at dampening nominal exchange rate fluctuations also stabilizes the firm turnover in the export market. When firms are homogeneous and low productive, this policy may dominate as it reduces the fluctuations in labor demand arising from entry and exit of exporters following a demand shock.