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The Choice of Exchange Rate Regime and Monetary Target in Highly Dollarized Economies

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Author Info

  • Eduardo Borensztein
  • Andrew Berg

Abstract

We examine the implications of high degrees of dollarization for the choice of exchange rate regime and the information content of various monetary aggregates in developing countries. We conclude that a high degree of currency substitution argues for a more fixed exchange rate regime, while asset substitution may imply that either more rigid or more flexible regimes may be appropriate. We also ask whether the most informative monetary aggregates include dollar assets. Based on an analysis of five countries, we conclude inter alia that broader aggregates that include dollar assets perform better than those that do not.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 00/29.

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Length: 31
Date of creation: 01 Feb 2000
Date of revision:
Handle: RePEc:imf:imfwpa:00/29

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Postal: International Monetary Fund, Washington, DC USA
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Related research

Keywords: Dollarization; Currency substitution; Exchange rate regimes; Economic models; exchange rate; inflation; monetary aggregates; money demand; exchange rate regime; money supply; monetary policy; monetary aggregate; exchange rates; central bank; monetary fund; floating exchange rate; money market; fixed exchange rate; monetary assets; fixed exchange rates; monetary shocks; floating exchange rate regime; monetary authorities; demand for money; aggregate demand; exchange rate depreciation; foreign exchange; exchange rate risk; exchange rate changes; flexible exchange rate; flexible exchange rates; monetary authority; monetary conditions; exchange rate volatility; current exchange rate; real exchange rate; exchange risks; nominal exchange rate; exchange rate peg; fixed exchange rate regime; floating exchange rates; exchange controls; monetary equilibrium; monetary policy instruments; flexible exchange rate regime; foreign exchange market; exchange rate system; monetary target; exchange rate stability; domestic money supply; exchange rate determination; monetary standard; monetary independence; money markets; flexible exchange rate system; foreign exchange risks; exchange rate crisis; reserve requirement; monetary disturbances; exchange rate flexibility;

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