Capital markets and the exchange rate with special reference to the dollarization debate in Latin America
The paper reviews the main challenges faced by policymakers in emerging market economies, EM, in light of recent financial crises, and taking into account salient factors like the existence of partial dollarization, imperfect credibility, weak financial systems, and contagion. The standard theory of optimal currency areas is discussed and criticized for omitting the above factors. When these factors are taken into account, an extreme foreign exchange regime like dollarization is shown to become much more attractive. The paper discusses the pros and cons of dollarization and, among other things, shows that the lack of a lender of last resort is not necessarily a major drawback in EM. The paper also discusses inflation targeting, IT. In a formal model, it is shown that IT could be subject to credibility problems similar to those found in exchange rate-based stabilization programs.
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Volume (Year): (2001)
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References listed on IDEAS
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- Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1996.
"Inflows of Capital to Developing Countries in the 1990s,"
Journal of Economic Perspectives,
American Economic Association, vol. 10(2), pages 123-139, Spring.
- Leonardo Leiderman & Guillermo A. Calvo & Carmen Reinhart, 1994. "Entradas de capitales a países en desarrollo en los años 90: causas y efectos," Research Department Publications 4003, Inter-American Development Bank, Research Department.
- Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1994. "Inflows of Capital to Developing Countries in the 1990s: Causes and Effects," IDB Publications (Working Papers) 6291, Inter-American Development Bank.
- Leonardo Leiderman & Guillermo A. Calvo & Carmen Reinhart, 1994. "Inflows of Capital to Developing Countries in the 1990s: Causes and Effects," Research Department Publications 4002, Inter-American Development Bank, Research Department.
- Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1996. "Inflows of capital to developing countries in the 1990s," MPRA Paper 13707, University Library of Munich, Germany.
- Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
- Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
- Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
- Reinhart, Carmen, 2001. "Fear of Floating: Exchange Rate Flexibility Indices," MPRA Paper 13196, University Library of Munich, Germany.
- Edison, Hali & Reinhart, Carmen M., 2001. "Stopping hot money," Journal of Development Economics, Elsevier, vol. 66(2), pages 533-553, December.
- Guillermo A. Calvo, 1998. "Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops," Journal of Applied Economics, Universidad del CEMA, vol. 1, pages 35-54, November.
- Guillermo A. Calvo & Pablo E. Guidotti, 1993. "On the Flexibility of Monetary Policy: The Case of the Optimal Inflation Tax," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 667-687.
- Laura E. Kodres & Matthew Pritsker, 1998. "A rational expectations model of financial contagion," Finance and Economics Discussion Series 1998-48, Board of Governors of the Federal Reserve System (U.S.).
- Steve H. Hanke & Kurt Schuler, 1999. "A Monetary Constitution for Argentina: Rules for Dollarization," Cato Journal, Cato Journal, Cato Institute, vol. 18(3), pages 405-419, Winter.
- Reinhart, Carmen & Calvo, Guillermo, 1999. "The Consequences and Management of Capital Inflows: Lessons for Sub-Saharan Africa," MPRA Paper 7901, University Library of Munich, Germany. Full references (including those not matched with items on IDEAS)
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