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The Choice of Exchange Rate Regime and Monetary Target in Highly Dollarized Economies
Author:
Mr. Eduardo Borensztein
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and
Mr. Andrew Berg
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Series:
IMF Working Papers
Volume/Issue:
Volume 2000: Issue 029
Language:
English
Publication Date:
01 Feb 2000
DOI:
https://doi.org/10.5089/9781451844795.001
ISBN:
9781451844795
ISSN:
1018-5941
Pages:
31
Keywords:
WP; currency; exchange rate; monetary aggregate; Dollarization; currency substitution; exchange rates; financial programming; money demand; rate of exchange rate depreciation; inflation equation; dollar currency; Granger cause inflation; foreign currency assets; money targeting; exchange rate volatility; form inflation equation; misaligned exchange rate; currency holding; aggregates granger cause inflation; money aggregate; Currencies; Monetary aggregates; Exchange rate arrangements; Demand for money
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We examine the implications of high degrees of dollarization for the choice of exchange rate regime and the information content of various monetary aggregates in developing countries. We conclude that a high degree of currency substitution argues for a more fixed exchange rate regime, while asset substitution may imply that either more rigid or more flexible regimes may be appropriate. We also ask whether the most informative monetary aggregates include dollar assets. Based on an analysis of five countries, we conclude inter alia that broader aggregates that include dollar assets perform better than those that do not.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund