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

Paula Hernandez-Verme () and Grace Wang

MPRA Paper from University Library of Munich, Germany

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; Bank runs; Exchange rate regimes; Multiple reserve requirements; Dynamic Stochastic General Equilibrium; Open Economy Macroeconomics; International Financial crises. (search for similar items in EconPapers)
JEL-codes: E31 E42 E43 E44 E52 E58 E65 F31 F32 F33 F34 F41 G14 G21 G33 O11 O16 O53 (search for similar items in EconPapers)
Date: 2009-03-05, Revised 2009-08-11
New Economics Papers: this item is included in nep-dge, nep-ifn, nep-mac, nep-mic, nep-mon and nep-opm
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Related works:
Working Paper: Multiple Reserve Requirements, Exchange Rates, Sudden Stops and Equilibrium Dynamics in a Small Open Economy (2009) Downloads
Working Paper: Multiple Reserve Requirements, Exchange Rates, Sudden Stops and Equilibrium Dynamics in a Small Open Economy (2009) Downloads
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