This paper analyses optimal monetary policy in a small open economy allowing for financial dollarization (FD). More importantly, we endogenise FD, making it dependent on the expected monetary policy. Contrary to the standard small open economy model, where central banks should control domestic (producer) prices and adopt a pure floating exchange rate regime, we find that some exchange rate cont...

capital asset pricing, as one of the basic theories in finance and investment area, develop a model for estimation of expected rate of return and equity cost of capital. this model has many applications in the field of finance. one of anomalies in the capital asset pricing model is the value premium that its proponents believe this risk premium is compensation for a risk not mentioned in origin...