Currency Mismatch, Openness and Exchange Rate Regime Choice

Nicolas Magud

University of Oregon Economics Department Working Papers from University of Oregon Economics Department

Abstract: The paper analyzes the choice of an exchange rate regime for a small open economy indebted in foreign currency, incorporating the ¯nancial accelerator. Conventional wisdom suggests that floating regimes should insulate the economy from real shocks. I show that this result depends on the degrees of openness of the economy and foreign currency indebtedness and, in fact, does not hold for relatively closed economies. The transmission mechanism relies on nonlinearities in the impact of unanticipated real price changes on the external finance premium, in the spirit Fisher (1933).

Keywords: Currency Mismatch; Liability Dollarization; Balance Sheets; Exchange Rate Regimes; Openness; Nominal Rigidities (search for similar items in EconPapers)
JEL-codes: E31 E32 F34 F41 (search for similar items in EconPapers)
Pages: 41
Date: 2002-12-01, Revised 2004-09-01
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http://economics.uoregon.edu/papers/UO-2004-14_Magud_Openness.pdf (application/pdf)

Related works:
Journal Article: Currency mismatch, openness and exchange rate regime choice (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ore:uoecwp:2004-14

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