In this paper we demonstrate that exchange rate regime switching is compatible with optimal government policies. Nominal exchange-rate regimes are formalized as equilibrium commitments on future seigniorage policies, and the collapse of an exchange-rate peg as an excusable default which allows...

This paper presents an overview of recent theoretical and empirical reserach on "liquidity models" in open economies; this is a class of optimizing models where money has effects on real asset prices and economic activity without relying on the "ad-hoc" assumption of price/wage stickiness. The...

This paper considers the empirical evidence on liquidity effects in open economies; we study the effects of monetary policy shocks (identified by innovations in interest rates) on exchange rates. Both overshooting models with short-run price stickiness and flexible-price models with "liquidity...

A common argument against either a monetary union or a regime or a fixed exchange rates is that they preclude flexible use of the inflation tax. The authors address this point of view by comparing three alternative exchange rate regimes: a pure float, an EMS-regime in which the exchange rate is...