A Local Currency in a Dollarized Economy
نویسنده
چکیده
The paper uses a dual-currency search theoretic approach to demonstrate that it is possible to induce the acceptance of a local currency in a dollarized economy. In the model, we assume that a foreign currency is in full circulation and the government policy tool is the convertibility of the local currency to the foreign currency. We show that the economy can achieve equilibria where two monies are in circulation if the government can raise a sufficiently high probability of exchange between the two currencies.
منابع مشابه
Dollarization Traps *
The paper analyzes dollarization in the sense of asset substitution, where a foreign currency competes with local assets, especially domestic capital, as a store of value, the impact of dollarization on capital accumulation and output, and why economies remain dollarized long after a successful inflation stabilization. We relate this dollarization hysteresis to a financial intermediation failur...
متن کاملDiamond-Dybvig Banks in two-good, two-currecies, small open economies with cash - in - advance constraints.¤
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. With ...xed exchange rates and local lender of last resort, non-tradeables price de‡ation is necessary for existence as well as for implementation. Conditions for currency...
متن کاملDollarization and Macroeconomic Stability in Latin America
This paper examines if dollarization has had a positive impact on the macroeconomic stability of Latin American countries. Dollarization refers to either the official or unofficial replacement of local currencies with the U.S. dollar. Currently four Latin American countries are officially dollarized and the rest experience varying levels of unofficial dollarization. Data from the World Bank Wor...
متن کاملExchange Rate Pass-Through to Inflation and Its Effect on Economic Growth in a Dollarized Economies: The Case of Southeast Asian Countries
This paper aims to investigate the impact of exchange rate pass-through in dollarized economies to domestic inflation and economic growth: evidence from Southeast Asian countries. The panel data for five selected countries (Cambodia, Indonesia, Lao PDR, the Philippines and Vietnam) over the period 2000-2015 is employed. The empirical results by using fixed effects estimation found that there is...
متن کاملExchange Rate Pass-Through and Inflation in Dollarized Economies: Evidence from the Middle Eastern and North African Countries
T he investigation of exchange rate pass-through is an important issue in international finance. The relationship between exchange rate pass-through and exchange rate arrangements such as the dollarization regime has been examined in recent decades. For this purpose, the main objective of this study is to investigate the effect of exchange rate pass-through on the domestic inflation in selecte...
متن کامل