Currency Fluctuations, Liability Dollarization, and the Choice of Exchange Rate Regimes in Emerging Markets
Staff Working Papers from Bank of Canada
Keywords: Exchange; rate; regimes (search for similar items in EconPapers)
JEL-codes: E52 F31 F41 (search for similar items in EconPapers)
Pages: 32 pages Abstract: Traditional models of exchange rate regimes ignore the destabilizing effects of sharp and unanticipated exchange rate movements. Recent research, however, has shown that these movements have real costs in emerging markets owing to liability dollarization, financial fragility, or balance-sheet vulnerabilities. This paper evaluates the performance of an emerging-market economy under a credibly fixed-rate, a collapsing fixed-rate, and a flexible-rate regime using a speculative attack model that takes into account the destabilizing effects of unanticipated movements in exchange rates. The model is applied to South Korea to determine the dominant exchange rate regime.
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:02-6
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