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Currency Substitution and Financial Repression

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  • Rangan Gupta

Abstract

In this paper, we use a general equilibrium overlapping generations monetary endogenous growth model of a small open economy, to analyze whether financial repression, measured via the 'high' mandatory reserve-deposit requirements of financial intermediaries, is an optimal response of a consolidated government following an increase in the degree of currency substitution. We find that higher currency substitution can yield higher reserve requirements, but the result depends crucially on how the consumer weighs money in the utility function relative to domestic and foreign consumptions, and also the size of the government.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 25 (2011)
Issue (Month): 1 ()
Pages: 47-61

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Handle: RePEc:taf:intecj:v:25:y:2011:i:1:p:47-61

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Related research

Keywords: Currency substitution; endogenous growth models; financial repression; small open economy; public finance;

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Cited by:
  1. Rangan Gupta & Cobus Vermeulen, 2010. "Private and Public Health Expenditures in an Endogenous Growth Model with Inflation Targeting," Working Papers 201001, University of Pretoria, Department of Economics.

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