Pricing-to-Market, the Interest-Rate Rule, and the Exchange Rate

Maurice Obstfeld

NBER Working Paper No. 12699
Issued in November 2006
NBER Program(s):   IFM   ITI

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.

(188 K)

Published: Reinhart, Carmen, Carlos Vegh, and Andres Velasco (eds.) Money, Crises, and Transition: Essays in Honor of Guillermo A. Calvo. Cambridge, MA: MIT Press, 2008.

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Acknowledgments

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