Currency mismatch, openness and exchange rate regime choice

Nicolas Magud

Journal of Macroeconomics, 2010, vol. 32, issue 1, 68-89

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

Keywords: Currency; mismatch; Liability; dollarization; Balance; sheets; Exchange; rate; regimes; Openness; Nominal; rigidities (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (15)

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Working Paper: Currency Mismatch, Openness and Exchange Rate Regime Choice (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:32:y:2010:i:1:p:68-89

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