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

Author/Editor:

Eduardo Borensztein ; Andrew Berg

Publication Date:

February 1, 2000

Electronic Access:

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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.

Series:

Working Paper No. 00/29

Subject:

Currency substitution Demand for money Dollarization Economic models Exchange rate regimes

English

Publication Date:

February 1, 2000

ISBN/ISSN:

9781451844795/1018-5941

Stock No:

WPIEA0292000

Format:

Paper

Pages:

31

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