Currency Substitution and Financial Repression

Rangan Gupta ()

No 200806, Working Papers from University of Pretoria, Department of Economics

Abstract: In this paper, we use a general equilibrium overlapping generations monetary endogenous growth model of a small open economy, to analyze whether financial repression, measured via the "high" mandatory reserve-deposit requirements of financial intermediaries, is an optimal response of a consolidated government following an increase in the degree of currency substitution. We find that higher currency substitution can yield higher reserve requirements, but, the result depends crucially on how the consumer weighs money in the utility function relative to domestic and foreign consumptions, and also the size of the government.

Keywords: Currency Substitution; Endogenous Growth Models; Financial Repression; Small Open Economy; Public Finance (search for similar items in EconPapers)
JEL-codes: E31 E44 E63 F43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-opm
Date: 2008-04
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Persistent link: http://EconPapers.repec.org/RePEc:pre:wpaper:200806

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