Rappoport, Veronica 
ORCID: 0009-0007-3665-4304
(2009)
Persistence of dollarization after price stabilization.
Journal of Monetary Economics, 56 (7).
pp. 979-989.
ISSN 0304-3932
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: | 11 Dec 2024 23:37 |
| URI: | http://eprints.lse.ac.uk/id/eprint/50047 |
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