TY  - JOUR
AU  - Schmitt-Grohé,Stephanie
AU  - Uribe,Martín
TI  - Managing Currency Pegs
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18092
PY  - 2012
Y2  - May 2012
UR  - http://www.nber.org/papers/w18092
L1  - http://www.nber.org/papers/w18092.pdf
N1  - Author contact info:
Stephanie Schmitt-Grohe
Department of Economics
Columbia University
New York, NY 10027
Tel: 212/854-8059
Fax: 212/854-4010
E-Mail: stephanie.schmittgrohe@columbia.edu

Martin Uribe
Department of Economics
Columbia University
International Affairs Building
New York, NY 10027
Tel: 212 851 4008
Fax: 212 854 8059
E-Mail: martin.uribe@columbia.edu
AB  - The combination of a fixed exchange rate and downward nominal wage rigidity creates a real rigidity.  In turn, this real rigidity makes the economy prone to involuntary unemployment  during external crises. This paper presents a graphical analysis of alternative policy strategies aimed at mitigating this source of inefficiency.  First- and second-best monetary and fiscal solutions are analyzed.  Second-best solutions are found to be prudential, whereas first-best solutions  are not.
ER  -