Bacchetta, Philippe van Wincoop, Eric <jats:p> This paper develops a simple general-equilibrium framework to study the effect of the exchange-rate system on trade and welfare. An important feature of the model is deviations from purchasing-power parity, caused by rigid price setting in buyers' currency. In a benchmark model with separable preferences and only monetary shocks, trade is unaffected by the exchange-rate system, consistent with most evidence. In general, both trade and welfare can be higher under either exchange-rate system, depending on preferences and on the monetary-policy rules followed under each system. There is no one-to-one relationship between the levels of trade and welfare across exchange-rate systems. (JEL F31, F33, F41) </jats:p> application/pdf https://sonar.ch/global/documents/161325 eng info:eu-repo/semantics/altIdentifier/doi/10.1257/aer.90.5.1093 info:eu-repo/semantics/altIdentifier/issn/0002-8282 info:eu-repo/semantics/openAccess American Economic Review. - American Economic Association. - 2000, vol. 90, no. 5, p. 1093-1109 Economics and Econometrics Does Exchange-Rate Stability Increase Trade and Welfare? http://purl.org/coar/resource_type/c_6501