Assessing Financial Vulnerability in Partially Dollarized Economies
The reduction of macroeconomic vulnerability in emerging markets is at the core of the research agenda. In this context, liability dollarization plays a vital role and its implications have been addressed in the literature via a “financial accelerator” mechanism. After allowing for different degrees of liability dollarization in a general equilibrium framework, this analysis uncovers some important implications about the role of the asset price channel and central bank’s commitment with the exchange rate, when assessing financial vulnerability. 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 not only help mitigate vulnerability but will also be welfare improving. On the other hand, and with an active asset price channel, a tighter exchange rate policy will only have marginal effects on welfare and vulnerability when compared to that associated to a reduction in liability dollarization.
References listed on IDEAS
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.:
- Kiyotaki, Nobuhiro & Moore, John, 1997.
Journal of Political Economy,
University of Chicago Press, vol. 105(2), pages 211-48, April.
- Ryo Kato, 2003. "Matlab code for Kiyotaki-Moore credit cycles," QM&RBC Codes 113, Quantitative Macroeconomics & Real Business Cycles.
- John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
- Nobuhiro Kiyotaki & John Moore, 1995. "Credit Cycles," NBER Working Papers 5083, National Bureau of Economic Research, Inc.
- 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.
- Svensson, Lars E.O., 1998.
"Open-Economy Inflation Targeting,"
638, Stockholm University, Institute for International Economic Studies.
- Lars E. O. Svensson, 2000. "Open-Economy Inflation Targeting," NBER Working Papers 6545, National Bureau of Economic Research, Inc.
- Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers.
- Svensson, L.E.O., 1998. "Open-Economy Inflation Targeting," Papers 638, Stockholm - International Economic Studies.
- Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998.
"The Financial Accelerator in a Quantitative Business Cycle Framework,"
NBER Working Papers
6455, National Bureau of Economic Research, Inc.
- 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.
- Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
- Moron, Eduardo & Winkelried, Diego, 2005.
"Monetary policy rules for financially vulnerable economies,"
Journal of Development Economics,
Elsevier, vol. 76(1), pages 23-51, February.
- Eduardo Moron & Diego Winkelried, 2002. "Monetary Policy Rules for Financially Vulnerable EconomieEd," Macroeconomics 0205001, EconWPA.
- Eduardo MorÃ³n & Diego Winkelried, 2003. "Monetary Policy Rules for Financially Vulnerable Economies," IMF Working Papers 03/39, International Monetary Fund.
- 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.
- Mark Gertler & Simon Gilchrist & Fabio M. Natalucci, 2003.
"External constraints on monetary policy and the financial accelerator,"
BIS Working Papers
139, Bank for International Settlements.
- 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.
- Mark Gertler & Simon Gilchrist & Fabio M. Natalucci, 2001. "External constraints on monetary policy and the financial accelerator," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
- Mark Gertler & Simon Gilchrist & Fabio Natalucci, 2003. "External Constraints on Monetary Policy and the Financial Accelerator," NBER Working Papers 10128, National Bureau of Economic Research, Inc.
- 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.).
- Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October.
- Andrew Levin & Christopher J. Erceg & Dale W. Henderson, 1999. "Optimal Monetary Policy with Staggered Wage and Price Contracts," Computing in Economics and Finance 1999 1151, Society for Computational Economics.
- Marco Vega & Diego Winkelreid, 2005.
"How Does a Global Disinflation Drag Inflation in Small Open Economies?,"
2005-001, Banco Central de Reserva del Perú.
- Diego Winkelried & Marco Vega, 2004. "How Does Global Disinflation Drag Inflation in Small Open Economies?," Econometric Society 2004 Latin American Meetings 76, Econometric Society.
- Marco Vega & Diego Winkelried, 2004. "How Does Global Disinflation Drag Inflation in Small Open Economies?," Macroeconomics 0403008, EconWPA.
- 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.
- Eduardo Moron & Juan F. Castro, 2003. "Dedollarizing the Peruvian Economy," Macroeconomics 0312005, EconWPA.
- Eduardo Levy Yeyati & Alain Ize, 1998. "Dollarization of Financial Intermediation; Causes and Policy Implications," IMF Working Papers 98/28, International Monetary Fund.
- Christian Broda & Eduardo Levy Yeyati, 2003.
"Endogenous Deposit Dollarization,"
Business School Working Papers
dieciseis, Universidad Torcuato Di Tella.
- Selim Elekdag & Ivan Tchakarov, 2004.
"Balance Sheets, Exchange Rate Policy, and Welfare,"
IMF Working Papers
04/63, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpif:0406002. 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: (EconWPA)
If references are entirely missing, you can add them using this form.