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On the distributional effects of exchange rate fluctuations


Abstract: The paper studies the differential impact of exchange rate fluctuations on households in a country. I extend earlier research by relaxing the assumption of complete international sectoral specialization. My setup allows for the presence of several different sectors in a given country, each producing a different type of good. Combined with incomplete asset markets, the sectoral dimension leads to a heterogeneous impact of exchange rate fluctuation within each country. In particular, although a depreciation of a country's currency has an adverse 'beggar-thyself' effect for the country as a whole, a minority of households benefit.

Keywords: Production (Economic theory); Foreign exchange rates;

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Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2002

Number: 146