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Overshooting and Dollarization in the Democratic Republic of the Congo

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  • Philippe Beaugrand
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    Abstract

    The paper develops an interpretation of volatile exchange rate movements in a dollarized economy with very high rates of inflation. Differences between the rate of inflation and currency depreciation (over- or undershooting of the exchange rate) are seen as a proxy for changes in the relative demand for domestic and foreign currency. A simple model is calibrated for the Democratic Republic of the Congo in the 1990s and is used to derive estimates of the rate of dollarization.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=16544
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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/105.

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    Length: 27
    Date of creation: 01 May 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/105

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    Related research

    Keywords: Dollarization; Exchange rates; Economic models;

    References

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    1. Nouriel Roubini & Michele Cavallo & Kate Kisselev, 2004. "Exchange rate overshooting and the costs of floating," Computing in Economics and Finance 2004 62, Society for Computational Economics.
    2. Kenneth Rogoff, 2002. "Dornbusch's Overshooting Model After Twenty-Five Years," IMF Working Papers 02/39, International Monetary Fund.
    3. Maurice Obstfeld and Kenneth Rogoff., 1995. "Exchange Rate Dynamics Redux," Center for International and Development Economics Research (CIDER) Working Papers C95-048, University of California at Berkeley.
    4. Lane, Philip R., 1999. "The New Open Economy Macroeconomics: a Survey," CEPR Discussion Papers 2115, C.E.P.R. Discussion Papers.
    5. Feige, Edgar L., 1997. "Revised estimates of the Underground Economy: Implications of US Currency held abroad," MPRA Paper 13805, University Library of Munich, Germany.
    6. Michele Cavallo & Kate Kisselev & Fabrizio Perri & Nouriel Roubini, 2005. "Exchange rate overshooting and the costs of floating," Working Paper Series 2005-07, Federal Reserve Bank of San Francisco.
    7. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
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    Cited by:
    1. Bayraktar, Nihal & Fofack, Hippolyte, 2007. "Specification of investment functions in Sub-Saharan Africa," Policy Research Working Paper Series 4171, The World Bank.

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