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The practice of “currency manipulation” has been widely recognized. The paper explores the choice of exchange rate regime with firm heterogeneity and resulting selection into exporting markets. For that purpose, we build a two-country model with firm heterogeneity and nominal wage rigidity. Since monetary intervention influences entry and exit decision of firms in exporting markets, it features inevitable characteristics of currency manipulation. We show that fixed regime not only realizes a better congruence between preference and the variety consumed but also reduces uncertainty in labor demand that arises from entry and exit of exporters. In our setting, fixed exchange rate regime dominates flexible exchange rate regime with lower level of firm dispersion. We also show that regulation policy in trade sector that aims to stabilize firm turnover cannot remove the temptation of the currency manipulation.
