The relationship between investment and large exchange rate depreciations in dollarized economies

Luis Carranza (), Jose Galdon-Sanchez () and Javier Gomez-Biscarri
Authors registered in the RePEc Author Service: Javier Gómez Biscarri

Journal of International Money and Finance, 2011, vol. 30, issue 7, 1265-1279

Abstract: We use a simple financial friction in an economy with high degree of liability dollarization – and currency mismatch – to show that the negative balance-sheet effect of an exchange rate depreciation may be observable only if the magnitude of the depreciation is large enough. This result justifies the difficulty to find strong empirical evidence for balance-sheet effects and suggests the convenience of including a “large depreciation” term in empirical analyses. We review some of the related empirical literature and provide some new evidence of this large depreciation effect.

Keywords: Large depreciation; Dollarization; Balance-sheet effect; Investment; Currency mismatch (search for similar items in EconPapers)
JEL-codes: F31 F33 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560611001112
Full text for ScienceDirect subscribers only

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:eee:jimfin:v:30:y:2011:i:7:p:1265-1279

DOI: 10.1016/j.jimonfin.2011.07.006

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().