TY  - JOUR
AU  - Lahiri,Amartya
AU  - Singh,Rajesh
AU  - Vegh,Carlos A.
TI  - Segmented Asset Markets and Optimal Exchange Rate Regimes
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13154
PY  - 2007
Y2  - June 2007
UR  - http://www.nber.org/papers/w13154
L1  - http://www.nber.org/papers/w13154.pdf
N1  - Author contact info:
Amartya Lahiri
Department of Economics
University of British Columbia
Vancouver, BC V6T 1Z1
Tel: 604-822-8606
E-Mail: alahiri@interchange.ubc.ca

Rajesh Singh
Department of Economics
Iowa State University
280D Heady Hall
Ames, IA  50011
Tel: 515/292-7631
E-Mail: rsingh@iastate.edu

Carlos A. Vegh
Department of Economics
Tydings Hall, Office 4118G
University of Maryland
College Park, MD 20742-7211
Tel: 301-405-3546
Fax: 301-405-3542
E-Mail: vegh@econ.bsos.umd.edu
AB  - This paper revisits the issue of the optimal exchange rate regime in a flexible price environment.  The key innovation is that we analyze this question in the context of environments where only a fraction of agents participate in asset market transactions (i.e., asset markets are segmented). Under this friction, alternative exchange rate regimes have different implications for real allocations in the economy.  In particular -- and contrary to standard results under sticky prices -- we show that flexible exchange rates are optimal under monetary shocks and fixed exchange rates are optimal under real shocks. 
ER  -