Monetary policy in a dollarized economy where balance sheets matter

Roberto Chang, Andrés Velasco

Research output: Contribution to journalArticle

13 Citations (Scopus)

Abstract

Does the dollarization of liabilites and the resulting balance sheet vulnerability prevent monetary policy from serving its conventional countercyclical role? We study this question in a model of a small open economy in which domestic firms face an imperfect capital market, with risk premia depending on net worth as in Bernanke and Gertler [Am. Econ. Rev. 79 (1989) 14.]. In spite of the financial fragility channels present in the model, the conventional wisdom still holds: under a floating exchange rate, countercyclical monetary policy does help cushion the impact of foreign real shocks.

Original languageEnglish (US)
Pages (from-to)445-464
Number of pages20
JournalJournal of Development Economics
Volume66
Issue number2
DOIs
StatePublished - Nov 29 2001

Fingerprint

balance sheet
monetary policy
capital market
open economy
economy
floating
exchange rate
wisdom
vulnerability
firm
present
Balance sheet
Monetary policy
Financial fragility
Domestic firms
Dollarization
Floating exchange rates
Vulnerability
Wisdom
Net worth

All Science Journal Classification (ASJC) codes

  • Development
  • Economics and Econometrics

Keywords

  • Dollarization
  • Monetary policy
  • Net worth effects

Cite this

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Monetary policy in a dollarized economy where balance sheets matter. / Chang, Roberto; Velasco, Andrés.

In: Journal of Development Economics, Vol. 66, No. 2, 29.11.2001, p. 445-464.

Research output: Contribution to journalArticle

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