External Constraints on Monetary Policy and the Financial Accelerator 1

@inproceedings{Gertler2001ExternalCO,
  title={External Constraints on Monetary Policy and the Financial Accelerator 1},
  author={Mark Gertler},
  year={2001}
}
This paper incorporates a ̄nancial accelerator mechanism in a small open economy macro model with money and nominal price rigidities. Our goal is to explore the connection between ̄nancial distress that feeds into the real economy and the exchange rate regime. Our principle ̄nding is that ̄nancial accelerator e®ects are much stronger under ̄xed rates than under °exible rates (with a suitably managed monetary policy). Roughly speaking, an exchange rate peg forces the central bank to adjust… CONTINUE READING
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