Firm Turnover in the Export Market and the Case for Fixed Exchange Rate Regime

51 Pages Posted: 30 Jan 2020

See all articles by Masashige Hamano

Masashige Hamano

Waseda University

Francesco Pappadà

Banque de France; Paris School of Economics (PSE)

Date Written: December 30, 2019

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.

Keywords: monetary policy, exchange rate regime, firm heterogeneity

JEL Classification: F32, F41, E40

Suggested Citation

Hamano, Masashige and Pappadà, Francesco, Firm Turnover in the Export Market and the Case for Fixed Exchange Rate Regime (December 30, 2019). Bank of Finland Research Discussion Paper No. 1/2020, Available at SSRN: https://ssrn.com/abstract=3527694 or http://dx.doi.org/10.2139/ssrn.3527694

Masashige Hamano (Contact Author)

Waseda University ( email )

1-104 Totsukamachi, Shinjuku-ku
tokyo, 169-8050
Japan

Francesco Pappadà

Banque de France ( email )

Paris
France

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

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