As documented in recent studies, developing countries (classified by the IMF as floaters or managed floaters) are extremely reluctant to allow for large nominal exchange rate fluctuations. This 'fear of floating' is reflected in the fact that, in spite of being subject to larger shocks,...

As documented in recent studies, developing countries (classified by the IMF as floaters or managed floaters) are extremely reluctant to allow for large nominal exchange rate fluctuations. This "fear of floating" is reflected in the fact that, in spite of being subject to larger shocks,...

As documented in recent studies, developing countries (classified by the IMF as floaters or managed floaters) are extremely reluctant to allow for large nominal exchange rate fluctuations. This 'fear of floating' is reflected in the fact that, in spite of being subject to larger shocks,...

We present a new data fact: in response to a monetary tightening, the nominal exchange tends to appreciate in developed countries but depreciate in developing countries. A model is formalized to rationalize this puzzling pattern. It has three key channels of monetary transmission: a liquidity...