Aizenman, Joshua; Yi, Chae-u - 2008
growth. We obtain mixed results. For an economy where LBD externality operates in the traded sector, real exchange rate … undervaluation may be used in order to internalize this externality, if the LBD calls for subsidizing employment in the traded sector … externality is embodied in aggregate investment, the optimal policy calls for subsidizing the cost of capital in the traded sector …