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The relationship between investment and large exchange rate depreciations in dollarized economies

  • Luis Carranza


    (Universidad San Martín de Porres)

  • José Enrique Galdón Sánchez


    (Universidad Pública de Navarra)

  • Javier Gómez Biscarri


    (IESE Business School)

We use a simple financial friction in an economy with high degree of liability dollarization to show that the negative balance-sheet effect of an exchange rate depreciation may be observable only if the magnitude of the depreciation is large enough. This result justifies the difficulty to find strong empirical evidence for balance-sheet effects and suggests the convenience of including a "large depreciation" term in empirical analyses.

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Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 01/08.

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Date of creation: 01 May 2008
Date of revision:
Handle: RePEc:una:unccee:wp0108
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