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Assessing Financial Vulnerability in Partial Dollarized Economies

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Author Info

  • Juan Castro

    ()
    (Departamento de Economía, Universidad del Pacífico)

  • Eduardo Morón

    ()
    (Departamento de Economía, Universidad del Pacífico)

  • Diego Winkelried

    ()
    (Departamento de Economía, Universidad del Pacífico)

Abstract

"The reduction of macroeconomic vulnerability in emerging markets is at the core of the research agenda. Liability dollarization plays a vital role and its implications have been addressed in the literature via a “financial accelerator” mechanism. If we asses vulnerability in terms of the evolution of investment, we claim that, in absence of an asset price channel, departures from a pure float will mitigate vulnerability and improve welfare. Conversely, with an active asset price channel a tighter exchange rate policy will have marginal effects on welfare and vulnerability when compared to that associated to a reduction in liability dollarization."

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File URL: http://www.up.edu.pe/ciup/SiteAssets/Lists/JER_Jerarquia/EditForm/20060918103138_DD-04-03.pdf
File Function: First Version, 2004
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Bibliographic Info

Paper provided by Departamento de Economía, Universidad del Pacífico in its series Working Papers with number 04-03.

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Length: 39 pages
Date of creation: Sep 2004
Date of revision: Nov 2004
Handle: RePEc:pai:wpaper:04-03

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Web page: http://www.up.edu.pe/
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Related research

Keywords: Liability dollarization; Financial vulnerability; Fear of floating; Monetary Policy;

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References

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  1. Moron, Eduardo & Winkelried, Diego, 2005. "Monetary policy rules for financially vulnerable economies," Journal of Development Economics, Elsevier, vol. 76(1), pages 23-51, February.
  2. Luis Felipe Céspedes & Roberto Chang & Andrés Velasco, 2004. "Balance Sheets and Exchange Rate Policy," American Economic Review, American Economic Association, vol. 94(4), pages 1183-1193, September.
  3. Diego Winkelried & Marco Vega, 2004. "How Does Global Disinflation Drag Inflation in Small Open Economies?," Econometric Society 2004 Latin American Meetings 76, Econometric Society.
  4. Mark Gertler & Simon Gilchrist & Fabio M. Natalucci, 2007. "External Constraints on Monetary Policy and the Financial Accelerator," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 295-330, 03.
  5. Lars E. O. Svensson, 2000. "Open-Economy Inflation Targeting," NBER Working Papers 6545, National Bureau of Economic Research, Inc.
  6. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  7. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
  8. Broda, Christian & Yeyati, Eduardo Levy, 2006. "Endogenous Deposit Dollarization," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 963-988, June.
  9. Andrew Levin & Christopher J. Erceg & Dale W. Henderson, 1999. "Optimal Monetary Policy with Staggered Wage and Price Contracts," Computing in Economics and Finance 1999 1151, Society for Computational Economics.
  10. Selim Elekdag & Ivan Tchakarov, 2004. "Balance Sheets, Exchange Rate Policy, and Welfare," IMF Working Papers 04/63, International Monetary Fund.
  11. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  12. Eduardo Levy Yeyati & Alain Ize, 1998. "Dollarization of Financial Intermediation," IMF Working Papers 98/28, International Monetary Fund.
  13. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(10), pages 1405-1423, September.
  14. Eduardo Moron & Juan F. Castro, 2003. "Dedollarizing the Peruvian Economy," Macroeconomics 0312005, EconWPA.
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Citations

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Cited by:
  1. Juan F. Castro & Eduardo Morón, 2005. "Financial Dollarization and the Size of the Fear," Macroeconomics 0509027, EconWPA.
  2. Carlos Gustavo Machicado, 2006. "Liquidity Shocks and the Dollarization of a Banking System," Development Research Working Paper Series 09/2006, Institute for Advanced Development Studies.
  3. Carlos Gustavo Machicado, 2007. "Growth and Banking Structure in a Partially Dollarized Economy," Development Research Working Paper Series 02/2007, Institute for Advanced Development Studies.
  4. Carlos Gustavo Machicado, 2006. "Welfare Gains from Optimal Policy in a Partially Dollarized Economy," Development Research Working Paper Series 10/2006, Institute for Advanced Development Studies.

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