We develop a general policy analysis framework for an open economy that features nominal rigidities and financial frictions giving rise to endogenous PPP and UIP deviations. The efficient allocation can be implemented with monetary policy closing the output gap and FX interventions eliminating...

We use a general open-economy wedge-accounting framework to characterize the set of shocks that can account for major exchange rate puzzles. Focusing on a near-autarky behavior of the economy, we show analytically that all standard macroeconomic shocks -- including productivity, monetary,...

What is the optimal macroeconomic tariff when trade is imbalanced and the policy objectives go beyond social welfare and also include fiscal revenues, increasing the number of manufacturing jobs, and closing a trade deficit? We study these questions in an environment which allows for long-run...