Exchange Rate Policy and Firm Heterogeneity

Masashige Hamano and Francesco Pappadà

IMF Economic Review, 2023, vol. 71, issue 3, No 7, 759-790

Abstract: Abstract This paper examines the exchange rate policy in a tractable framework with heterogeneous firms, incomplete financial markets and nominal rigidities. External demand shocks generate exchange rate movements leading to uncertainty in the labor demand of exporter firms. When exporter firms are homogeneous in terms of productivity, a monetary policy response to external demand shocks stabilizes the export market and improves welfare, thus providing a rationale for managed exchange rate policies.

Keywords: F32; F41; E40 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1057/s41308-022-00188-2

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