Currency Mismatch, Openness and Exchange Rate Regime Choice
AbstractThe paper analyzes the choice of an exchange rate regime for a small open economy indebted in foreign currency, incorporating the Â¯nancial accelerator. Conventional wisdom suggests that floating regimes should insulate the economy from real shocks. I show that this result depends on the degrees of openness of the economy and foreign currency indebtedness and, in fact, does not hold for relatively closed economies. The transmission mechanism relies on nonlinearities in the impact of unanticipated real price changes on the external finance premium, in the spirit Fisher (1933).
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Bibliographic InfoPaper provided by University of Oregon Economics Department in its series University of Oregon Economics Department Working Papers with number 2004-14.
Date of creation: 01 Dec 2002
Date of revision: 01 Sep 2004
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More information through EDIRC
Currency Mismatch; Liability Dollarization; Balance Sheets; Exchange Rate Regimes; Openness; Nominal Rigidities;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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