Exchange Rate Regimes, Monetary Policy and Banking Performance in Economies with Cash Constraints. Chang and Velasco Revisited
This paper analyzes a two-good version of the Diamond and Dybvig model in a small open economy. This structure is used to analyze the interaction between banks as liquidity insurers, real exchange rates and monetary policies. It is shown that fixed exchange rates with a Central Bank providing liquidity in pesos implements the efficient allocation. The conditions for a run equilibrium in this system are stronger than in the literature. In a flexible exchange rate regime, multiple equilibria cannot be eliminated. In particular, there is an equilibrium where a fraction of patient consumers purchases dollars in the interim period. This can be interpreted as a partial currency run event. A dollarized banking system may also implement the efficient allocation under some conditions.
|Date of creation:||Jan 2004|
|Date of revision:||Jan 2004|
|Contact details of provider:|| Postal: Vito Dumas 284, Victoria, Buenos Aires, B1644BID|
Web page: http://www.udesa.edu.ar
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
- Magill, M. & Quinzii, M., 1988.
"Real Effects Of Money In General Equilibrium,"
8826, Southern California - Department of Economics.
- Stephen D. Williamson, 1998.
"Discount Window Lending and Deposit Insurance,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 246-275, January.
- Schreft, Stacey L. & Smith, Bruce D., 1997.
"Money, Banking, and Capital Formation,"
Journal of Economic Theory,
Elsevier, vol. 73(1), pages 157-182, March.
- Diamond, Douglas W & Dybvig, Philip H, 1983.
"Bank Runs, Deposit Insurance, and Liquidity,"
Journal of Political Economy,
University of Chicago Press, vol. 91(3), pages 401-19, June.
- Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February.
- Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
- Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
When requesting a correction, please mention this item's handle: RePEc:sad:wpaper:66. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tamara Sulaque)
If references are entirely missing, you can add them using this form.