Monetary policy, financial dollarization and agency costs

Marco Vega

No 2015-019, Working Papers from Banco Central de Reserva del Perú

Abstract: This paper models an emerging economy with financial dollarization features within an optimizing, stochastic general equilibrium setup. One key result in this framework is that unexpected nominal exchange rate depreciations are positively correlated with the probability of default by borrower firms and turn out to be a powerful mechanism to affect aggregate consumption. Throughout the monetary policy evaluation exercises performed, the sign of the unexpected depreciation is positively correlated to the real value of assets and negatively correlated to aggregate consumption. This result supports the idea that unexpected exchange rate depreciations are contractionary and not expansionary if dollarization and agency costs in the financial sector are considered.

Keywords: Phillips Curve; Monetary Policy; Financial Dollarization; Financial Intermediation; Agency Costs; Small Open Economy (search for similar items in EconPapers)
JEL-codes: E31 E44 F41 G21 (search for similar items in EconPapers)
Date: 2015-12
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:rbp:wpaper:2015-019

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