Currency Substitution, Capital Flight and Real Exchange Rates

Jorge Streb ()

No 113, CEMA Working Papers: Serie Documentos de Trabajo. from Universidad del CEMA

Abstract: This paper focuses on a monetary explanation of real exchange rate fluctuations, namely capital flight provoked by the process of currency substitution. Under fixed exchange rates, capital inflows to reconstitute domestic money holdings produce a positive liquidity effect due to the creation of inside money by the financial system. This can initially lead to an exchange rate appreciation, through an increase in the price of nontradables, and a current account deficit. A process of deflation must then ensue to converge to the new steady state equilibrium.

Keywords: exchange rate-based stabilizations; inside money (search for similar items in EconPapers)
JEL-codes: F41 (search for similar items in EconPapers)
Date: 1996-07
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.ucema.edu.ar/publicaciones/download/documentos/113.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:cem:doctra:113

Access Statistics for this paper

More papers in CEMA Working Papers: Serie Documentos de Trabajo. from Universidad del CEMA Contact information at EDIRC.
Bibliographic data for series maintained by Valeria Dowding ().