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Assessing Financial Vulnerability in Partial Dollarized Economies

  • Juan Castro

    ()

    (Departamento de Economía, Universidad del Pacífico)

  • Eduardo Morón

    ()

    (Departamento de Economía, Universidad del Pacífico)

  • Diego Winkelried

    ()

    (Departamento de Economía, Universidad del Pacífico)

"The reduction of macroeconomic vulnerability in emerging markets is at the core of the research agenda. Liability dollarization plays a vital role and its implications have been addressed in the literature via a “financial accelerator” mechanism. If we asses vulnerability in terms of the evolution of investment, we claim that, in absence of an asset price channel, departures from a pure float will mitigate vulnerability and improve welfare. Conversely, with an active asset price channel a tighter exchange rate policy will have marginal effects on welfare and vulnerability when compared to that associated to a reduction in liability dollarization."

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File URL: http://www.up.edu.pe/ciup/SiteAssets/Lists/JER_Jerarquia/EditForm/20060918103138_DD-04-03.pdf
File Function: First Version, 2004
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Paper provided by Departamento de Economía, Universidad del Pacífico in its series Working Papers with number 04-03.

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Length: 39 pages
Date of creation: Sep 2004
Date of revision: Nov 2004
Handle: RePEc:pai:wpaper:04-03
Contact details of provider: Web page: http://www.up.edu.pe/

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  1. Christian Broda & Eduardo Levy Yeyati, 2003. "Endogenous deposit dollarization," Staff Reports 160, Federal Reserve Bank of New York.
  2. Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers 638, Stockholm University, Institute for International Economic Studies.
  3. John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
  4. Mark Gertler & Simon Gilchrist & Fabio M. Natalucci, 2007. "External Constraints on Monetary Policy and the Financial Accelerator," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 295-330, 03.
  5. Eduardo Morón & Diego Winkelried, 2003. "Monetary Policy Rules for Financially Vulnerable Economies," IMF Working Papers 03/39, International Monetary Fund.
  6. Luis Felipe Céspedes & Roberto Chang & Andrés Velasco, 2004. "Balance Sheets and Exchange Rate Policy," American Economic Review, American Economic Association, vol. 94(4), pages 1183-1193, September.
  7. Eduardo Levy Yeyati & Alain Ize, 1998. "Dollarization of Financial Intermediation; Causes and Policy Implications," IMF Working Papers 98/28, International Monetary Fund.
  8. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(10), pages 1405-1423, September.
  9. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  10. Christopher J. Erceg & Dale W. Henderson & Andrew T. Levin, 1999. "Optimal monetary policy with staggered wage and price contracts," International Finance Discussion Papers 640, Board of Governors of the Federal Reserve System (U.S.).
  11. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  12. Selim Elekdag & Ivan Tchakarov, 2004. "Balance Sheets, Exchange Rate Policy, and Welfare," IMF Working Papers 04/63, International Monetary Fund.
  13. Eduardo Moron & Juan F. Castro, 2003. "Dedollarizing the Peruvian Economy," Macroeconomics 0312005, EconWPA.
  14. Marco Vega & Diego Winkelreid, 2005. "How Does a Global Disinflation Drag Inflation in Small Open Economies?," Working Papers 2005-001, Banco Central de Reserva del Perú.
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