If floating exchange rates stabilize shocks rather than create shocks, a country that joins a monetary union or fixes its exchange rate looses a stabilizing mechanism. We use a first difference structural VAR on trade weighted macroeconomic data to study the role of floating exchange rates for...

This paper uses a dynamic stochastic rational expectations model of a small open economy to shed some light on factors determining exits from a fixed to a flexible exchange rate regime. Exits are in the model determined by a concern for macroeconomic stabilization. If cost-push shocks are...