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Hard currency and financial development

  • Ilan Goldfajn

    ()

    (Department of Economics PUC-Rio)

  • Roberto Rigobon

    ()

This paper investigates the relationship between hard currency and financial development. It creates four different series of hard currency based on different sets of data. The results of the paper suggest that indeed financial development and the hardness of currencies are highly correlated. However, we find that the relationship from currency hardness to financial development is fully captured by macro variables that represent overall macroeconomic stability. This suggest that having a hard currency is not a pre-condition for financial development but rather establishing a macroeconomic stable environment.

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File URL: http://www.econ.puc-rio.br/pdf/td438.pdf
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Paper provided by Department of Economics PUC-Rio (Brazil) in its series Textos para discussão with number 438.

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Length: 37 pages
Date of creation: Dec 2000
Date of revision:
Handle: RePEc:rio:texdis:438
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  1. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 329-368.
  2. Sebastian Edwards & Miguel A. Savastano, 1999. "Exchange Rates in Emerging Economies: What Do We Know? What Do We Need to Know?," NBER Working Papers 7228, National Bureau of Economic Research, Inc.
  3. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does the Nominal Exchange Rate Regime Matter?," NBER Working Papers 5874, National Bureau of Economic Research, Inc.
  4. Eduardo Fernández-Arias & Ricardo Hausmann, 1999. "International Initiatives to Bring Stability to Financial Integration," IDB Publications (Working Papers) 6454, Inter-American Development Bank.
  5. Andrew Crockett & Chairman, 1999. "General discussion : exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 411-422.
  6. Mishkin, Frederic S., 1998. "International Experiences With Different Monetary Policy Regimes," Seminar Papers 648, Stockholm University, Institute for International Economic Studies.
  7. David Romer, 1991. "Openness and Inflation: Theory and Evidence," NBER Working Papers 3936, National Bureau of Economic Research, Inc.
  8. Eduardo Levy Yeyati & Alain Ize, 1998. "Dollarization of Financial Intermediation; Causes and Policy Implications," IMF Working Papers 98/28, International Monetary Fund.
  9. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
  10. Norbert Funke & Mike Kennedy, 1997. "International Implications of European Economic and Monetary Union," OECD Economics Department Working Papers 174, OECD Publishing.
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