Rappoport, Veronica (2009) Persistence of dollarization after price stabilization. Journal of Monetary Economics, 56 (7). pp. 979-989. ISSN 0304-3932
Full text not available from this repository.Abstract
Credit contracts in developing countries are often denominated in foreign currencies, even after many of these economies succeeded in controlling inflation. This paper proposes a new interpretation of this apparent puzzle based on the demand for insurance against real shocks: the fact that devaluations occur more frequently in adverse states of the world provides a motive for holding dollar assets. This approach implies a complementarity between the optimal monetary policy and the currency denomination of contracts. When a large proportion of liabilities is denominated in a foreign currency, the optimal exchange rate volatility is low, which reinforces the demand for dollar assets.
| Item Type: | Article |
|---|---|
| Official URL: | http://www.sciencedirect.com/science/journal/03043... |
| Additional Information: | © 2009 Elsevier B.V. |
| Divisions: | Management |
| Subjects: | H Social Sciences > HG Finance |
| Date Deposited: | 12 Nov 2013 09:52 |
| Last Modified: | 03 Apr 2024 07:03 |
| URI: | http://eprints.lse.ac.uk/id/eprint/50047 |
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