A Theory of Fear of Floating

We thank Lawrence Christiano and Stephanie Schmitt-Grohé for excellent discussions. We also thank Manuel Amador, Marco Bassetto, VV Chari, Pablo Ottonello and conference and seminar participants at the University of Maryland, the Minneapolis Fed, the Dallas Fed, the Kansas City Fed, National Graduate Institute for Policy Studies, the 10th Annual Atlanta Workshop on International Economics, the Becker Friedman Institute International Macro-Finance conference, ERSA/CEPR conference, SEM meeting, SED 2022 Annual Meeting, and the 3rd workshop on International Capital Flows & Financial Policies at the IMF. The views expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the Federal Reserve Bank of Minneapolis, the Federal Reserve System, or the National Bureau of Economic Research.