Currency Substitution and Financial Repression

Rangan Gupta

International Economic Journal, 2011, vol. 25, issue 1, 47-61

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)
Date: 2011
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Working Paper: Currency Substitution and Financial Repression (2008)
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DOI: 10.1080/10168731003753875

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