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The Choice of Exchange Rate Regime and Monetary Target in Highly Dollarized Economies

Andrew Berg () and Eduardo Borensztein
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Eduardo Borensztein: International Monetary Fund, Research Department, http://www.imf.org/

Journal of Applied Economics, 2000, vol. 3, 285-324

Abstract: 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.

Keywords: Dollarization; currency substitution; Exchange rates; financial programming; money demand (search for similar items in EconPapers)
JEL-codes: E51 E52 E58 F31 F36 F41 (search for similar items in EconPapers)
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:cem:jaecon:v:3:y:2000:n:2:p:285-324

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