TY  - JOUR
AU  - Senay, Ozge
AU  - Sutherland, Alan
TI  - Can Endogenous Changes in Price Flexibility Alter the Relative Welfare Performance of Exchange Rate Regimes?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11092
PY  - 2005
Y2  - January 2005
DO  - 10.3386/w11092
UR  - http://www.nber.org/papers/w11092
L1  - http://www.nber.org/papers/w11092.pdf
N1  - Author contact info:
Ozge Senay
Department of Economics
University of St. Andrews
St. Andrews, Fife KY16 9AL
UK
E-Mail: os12@st-andrews.ac.uk

Alan Sutherland
Department of Economics
University of St. Andrews
St. Andrews, Fife KY16 9AL
UK
E-Mail: ajs10@st-and.ac.uk
M1  - published as Ozge Senay, Alan Sutherland. "Can Endogenous Changes in Price Flexibility Alter the Relative Welfare Performance of Exchange Rate Regimes?," in Richard H. Clarida, Jeffrey Frankel, Francesco Giavazzi and Kenneth D. West, editors, "NBER International Seminar on Macroeconomics 2004" The MIT Press (2006)

AB  - A dynamic general equilibrium model of a small open economy is presented where agents may choose the frequency of price changes. A fixed exchange rate is compared to inflation targeting and money targeting. A fixed rate generates more price flexibility than the other regimes when the expenditure switching effect is relatively weak, while money targeting generates more flexibility when the expenditure switching effect is strong. These endogenous changes in price flexibility can lead to changes in the welfare performance of regimes. But, for the model calibration considered here, the extra price flexibility generated by a peg does not compensate for the loss of monetary independence. Inflation targeting yields the highest welfare level despite generating the least price
flexibility of the three regimes considered.
ER  -