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Overshooting and Dollarization in the Democratic Republic of the Congo

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  • Philippe Beaugrand

Abstract

The paper develops an interpretation of volatile exchange rate movements in a dollarized economy with very high rates of inflation. Differences between the rate of inflation and currency depreciation (over- or undershooting of the exchange rate) are seen as a proxy for changes in the relative demand for domestic and foreign currency. A simple model is calibrated for the Democratic Republic of the Congo in the 1990s and is used to derive estimates of the rate of dollarization.

Suggested Citation

  • Philippe Beaugrand, 2003. "Overshooting and Dollarization in the Democratic Republic of the Congo," IMF Working Papers 03/105, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:03/105
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=16544
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    References listed on IDEAS

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    1. Fabrizio Perri & Michele Cavallo & Kate Kisselev & Nouriel Roubini, 2004. "Exchange rate overshooting and the costs of floating," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
    2. Fabrizio Perri & Michele Cavallo & Kate Kisselev & Nouriel Roubini, 2004. "Exchange rate overshooting and the costs of floating," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
    3. Lane, Philip R., 2001. "The new open economy macroeconomics: a survey," Journal of International Economics, Elsevier, vol. 54(2), pages 235-266, August.
    4. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-660, June.
    5. Feige, Edgar L., 1997. "Revised estimates of the Underground Economy: Implications of US Currency held abroad," MPRA Paper 13805, University Library of Munich, Germany.
    6. Kenneth Rogoff, 2002. "Dornbusch’s Overshooting Model After Twenty-Five Years," IMF Working Papers 02/39, International Monetary Fund.
    7. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
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    Cited by:

    1. Bayraktar, Nihal & Fofack, Hippolyte, 2007. "Specification of investment functions in Sub-Saharan Africa," Policy Research Working Paper Series 4171, The World Bank.

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