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Hard currency and financial development

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Author Info

  • Ilan Goldfajn

    ()
    (Department of Economics PUC-Rio)

  • Roberto Rigobon

    ()

Abstract

This paper investigates the relationship between hard currency and financial development. It creates four different series of hard currency based on different sets of data. The results of the paper suggest that indeed financial development and the hardness of currencies are highly correlated. However, we find that the relationship from currency hardness to financial development is fully captured by macro variables that represent overall macroeconomic stability. This suggest that having a hard currency is not a pre-condition for financial development but rather establishing a macroeconomic stable environment.

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File URL: http://www.econ.puc-rio.br/pdf/td438.pdf
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Bibliographic Info

Paper provided by Department of Economics PUC-Rio (Brazil) in its series Textos para discussão with number 438.

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Length: 37 pages
Date of creation: Dec 2000
Date of revision:
Handle: RePEc:rio:texdis:438

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References

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  1. Frederic S. Mishkin, 1999. "International Experiences with Different Monetary Policy Regimes," NBER Working Papers 6965, National Bureau of Economic Research, Inc.
  2. repec:fth:inadeb:402 is not listed on IDEAS
  3. David Romer, 1991. "Openness and inflation: theory and evidence," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  4. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 329-368.
  5. Eduardo Levy Yeyati & Alain Ize, 1998. "Dollarization of Financial Intermediation," IMF Working Papers 98/28, International Monetary Fund.
  6. Norbert Funke & Mike Kennedy, 1997. "International Implications of European Economic and Monetary Union," OECD Economics Department Working Papers 174, OECD Publishing.
  7. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
  8. Eduardo Fernández-Arias & Ricardo Hausmann, 1999. "International Initiatives to Bring Stability to Financial Integration," IDB Publications 6454, Inter-American Development Bank.
  9. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does the Nominal Exchange Rate Regime Matter?," NBER Working Papers 5874, National Bureau of Economic Research, Inc.
  10. Sebastian Edwards & Miguel A. Savastano, 1999. "Exchange Rates in Emerging Economies: What Do We Know? What Do We Need to Know?," NBER Working Papers 7228, National Bureau of Economic Research, Inc.
  11. Andrew Crockett & Chairman, 1999. "General discussion : exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 411-422.
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Cited by:
  1. Honohan, Patrick & Shi, Anging, 2001. "Deposit dollarization and the financial sector in emerging economies," Policy Research Working Paper Series 2748, The World Bank.
  2. Fatih Ozatay & Guven Sak, 2003. "Banking Sector Fragility and Turkey’s 2000–01 Financial Crisis," Working Papers 0308, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

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