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Financial intermediation, real exchange rates, and unconventional policies in an open economy

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  • Céspedes, Luis Felipe
  • Chang, Roberto
  • Velasco, Andrés

Abstract

We discuss unconventional policies in an open economy where financial intermediaries face occasionally binding collateral constraints. The model highlights interactions among the real exchange rate, interest rates, and financial frictions. The real exchange rate can affect international credit constraints via a net worth effect and a novel leverage ratio effect. Unconventional policies are non-neutral if financial constraints bind. Credit programs are most effective when targeted towards financial intermediaries. Sterilized interventions matter because the increased availability of tradables associated with sterilization relaxes financial frictions.

Suggested Citation

  • Céspedes, Luis Felipe & Chang, Roberto & Velasco, Andrés, 2017. "Financial intermediation, real exchange rates, and unconventional policies in an open economy," Journal of International Economics, Elsevier, vol. 108(S1), pages 76-86.
  • Handle: RePEc:eee:inecon:v:108:y:2017:i:s1:p:s76-s86
    DOI: 10.1016/j.jinteco.2016.12.012
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:inecon:v:111:y:2018:i:c:p:61-80 is not listed on IDEAS
    2. Korinek, Anton, 2018. "Regulating capital flows to emerging markets: An externality view," Journal of International Economics, Elsevier, vol. 111(C), pages 61-80.
    3. Roberto Chang, 2018. "Foreign Exchange Intervention Redux," NBER Working Papers 24463, National Bureau of Economic Research, Inc.
    4. Luigi Bocola & Guido Lorenzoni, 2017. "Financial Crises, Dollarization, and Lending of Last Resort in Open Economies," NBER Working Papers 23984, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Monetary policy; Exchange rates; Financial frictions;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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