Multiple Reserve Requirements, Exchange Rates, Sudden Stops and Equilibrium Dynamics in a Small Open Economy

Paula Hernandez-Verme () and Grace Wang
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Paula Hernandez-Verme: Department of Economics and Finance, Universidad de Guanajuato

No EC200905, Department of Economics and Finance Working Papers from Universidad de Guanajuato, Department of Economics and Finance

Abstract: We model a typical Asian-crisis-economy using dynamic general equilibrium tech-niques. Exchange rates obtain from nontrivial fiat-currencies demands. Sudden stops/bank-panics are possible, and key for evaluating the merits of alternative ex-change rate regimes. Strategic complementarities contribute to the severe indetermi-nacy of the continuum of equilibria. The scope for existence and indeterminacy of equilibria and dynamic properties are associated with the underlying policy regime. Binding multiple reserve requirements promote stability under floating but increase the scope for panic equilibria under both regimes. Backing the money supply acts as a stabilizer only in fixed regimes, but reduces financial fragility under both regimes.

Keywords: Sudden stops; Exchange rate regimes; Multiple reserve requirements (search for similar items in EconPapers)
JEL-codes: E31 E44 F41 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2009-07
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Multiple Reserve Requirements, Exchange Rates, Sudden Stops and Equilibrium Dynamics in a Small Open Economy (2009)
Working Paper: Multiple Reserve Requirements, Exchange Rates, Sudden Stops and Equilibrium Dynamics in a Small Open Economy (2009)
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