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| Titel: |
A model of liability dollarization and myopic governments |
| Auteur: |
Honig, Adam |
| Verschenen in: |
International economic journal |
| Paginering: | Jaargang 20 (2006) nr. 3 pagina's 343-355 |
| Jaar: |
2006-09-01 |
| Inhoud: |
Liability dollarization of the domestic banking system represents a source of vulnerability for emerging market countries. The root cause is a lack of faith in the domestic currency, which ultimately stems from the belief that the government will not follow policies that promote long-run currency stability. This paper presents a model in which government myopia determines the unofficial dollarization of bank credit. Specifically, myopic politicians will choose low interest rates to expand short-run output in order to get re-elected, but this choice has the long-run consequence of increasing dollar lending. Increased liability dollarization is shown to force the hand of future decision-makers into choosing fixed exchange rates because of the fear that large depreciations will destroy balance sheets. The results imply that institutional reforms are necessary to reverse liability dollarization. |
| Uitgever: |
Routledge |
| Bronbestand: |
Elektronische Wetenschappelijke Tijdschriften |
Details van artikel 1 van 8 gevonden artikelen
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