The Choice of Exchange Rate Regime and Monetary Target in Highly Dollarized Economies

February 1, 2000

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Eduardo Borensztein, and Andrew Berg. The Choice of Exchange Rate Regime and Monetary Target in Highly Dollarized Economies, (USA: International Monetary Fund, 2000) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We examine the implications of high degrees of dollarization for the choice of exchange rate regime and the information content of various monetary aggregates in developing countries. We conclude that a high degree of currency substitution argues for a more fixed exchange rate regime, while asset substitution may imply that either more rigid or more flexible regimes may be appropriate. We also ask whether the most informative monetary aggregates include dollar assets. Based on an analysis of five countries, we conclude inter alia that broader aggregates that include dollar assets perform better than those that do not.

Subject: Currencies, Demand for money, Dollarization, Exchange rate arrangements, Foreign exchange, Monetary aggregates, Monetary policy, Money

Keywords: Aggregates granger cause inflation, Currencies, Currency, Currency holding, Currency substitution, Demand for money, Dollar currency, Dollarization, Exchange rate, Exchange rate arrangements, Exchange rate volatility, Exchange rates, Financial programming, Foreign currency assets, Form inflation equation, Granger cause inflation, Inflation equation, Misaligned exchange rate, Monetary aggregate, Monetary aggregates, Money aggregate, Money demand, Money targeting, Rate of exchange rate depreciation, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2000/029
Stock No:

WPIEA0292000
ISBN:

9781451844795
ISSN:

1018-5941

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