Working Papers present research work by both Danmarks Nationalbank’s employees and our partners. Working Papers are primarily targeted at professionals and people with an interest in central banking research as well as economics and finance in a broader sense.

Monetary policy

WP 3/2002: Optimal Contract Currencies and Exchange Rate Policy

The paper develops a simple stochastic new open macroeconomic model in which price-setting firms' choice between producer currency pricing and local currency pricing is endogenous. We show that, in equilibrium, firms will denominate their export price contracts in the currency of the country with the lowest level of monetary variability. A welfare maximising government's choice of exchange rate regime is also analysed, and we find that a fixed exchange rate is preferable if the domestic monetary variability is higher than the foreign one.