Financial Frictions and the Interest-Rate Differential in a Dollarized Economy

Hugo Vega

No 2012-002, Working Papers from Banco Central de Reserva del Perú

Abstract: This paper presents a partial equilibrium characterization of the credit market in an economy with partial financial dollarization. Financial frictions, in the form of costly state verification and banking regulation restrictions, are introduced and their impact on lending and deposit interest rates denominated in domestic and foreign currency studied. The analysis shows that reserve requirements act as a tax that leads banks to decrease deposit rates, while the wedge between foreign and domestic currency lending rates is decreasing in exchange rate volatility and increasing in the degree of correlation between entrepreneur's returns and the exchange rate.

Date: 2012-01
New Economics Papers: this item is included in nep-ifn and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.bcrp.gob.pe/docs/Publicaciones/Documen ... -trabajo-02-2012.pdf Application/pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rbp:wpaper:2012-002

Access Statistics for this paper

More papers in Working Papers from Banco Central de Reserva del Perú Contact information at EDIRC.
Bibliographic data for series maintained by Research Unit ().