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Overshooting and Dollarization in the Democratic Republic of the Congo

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  • Mr. 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

  • Mr. Philippe Beaugrand, 2003. "Overshooting and Dollarization in the Democratic Republic of the Congo," IMF Working Papers 2003/105, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2003/105
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    References listed on IDEAS

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    1. Michele Cavallo & Kate Kisselev & Fabrizio Perri & Nouriel Roubini, 2004. "Exchange rate overshooting and the costs of floating," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
    2. Lane, Philip R., 2001. "The new open economy macroeconomics: a survey," Journal of International Economics, Elsevier, vol. 54(2), pages 235-266, August.
    3. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-660, June.
    4. Feige, Edgar L., 1997. "Revised estimates of the Underground Economy: Implications of US Currency held abroad," MPRA Paper 13805, University Library of Munich, Germany.
    5. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    6. Mr. Kenneth Rogoff, 2002. "Dornbusch’s Overshooting Model After Twenty-Five Years," IMF Working Papers 2002/039, International Monetary Fund.
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    Cited by:

    1. Fofack, Hippolyte, 2010. "Conflicts and returns to stability in developing countries : a comparative analysis," Policy Research Working Paper Series 5428, The World Bank.
    2. 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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