Working Paper: NBER ID: w12699
Authors: Maurice Obstfeld
Abstract: Even when the exchange-rate plays no expenditure-switching role, countries may wish to have flexible exchange rates in order to free the domestic interest rate as a stabilization tool. In a setting with nontraded goods, exchange-rate movements may also enhance international risk sharing.
Keywords: Exchange rates; Monetary policy; Interest rates; Nontraded goods
JEL Codes: F41; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exchange rate flexibility (F31) | independent interest rate policy (E43) |
| exchange rate movements (F31) | risk sharing (D16) |