Title
International financial integration, credit frictions and exchange rate regimes International financial integration, credit frictions and exchange rate regimes
Author
Faculty/Department
Faculty of Applied Economics
Publication type
report
Publication
Antwerp :Universiteit Antwerpen, Faculty of Applied Economics, [*]
Subject
Economics
Source (series)
Research paper / University of Antwerp, Faculty of Applied Economics ; 2013:015
Volume/pages
66 p.,
Carrier
E
Target language
English (eng)
Affiliation
University of Antwerp
Abstract
This paper studies the stabilisation properties of di¤erent exchange rate policies in a small open economy with cross-border balance sheet interdependence. The model features price and wage rigidities, credit frictions à la Bernanke, Gertler and Gilchrist (1999) both between households and banks and between banks and entrepreneurs, as well as international …nancial linkages à la Ueda (2012). I …nd that, overall, the argument in favor of ‡exible exchange rates holds irrespectively of the degree of …nancial integration. In fact, for all shocks considered, a …xed exchange rate policy delivers larger output losses and higher volatility of real and …nancial variables. Furthermore, my results reveal that the cost of pegging the exchange rate is inversely related to the degree of …nancial integration. Finally, I …nd that the presence of …nancial linkages increases the trade-o¤ between in‡ation and output volatility faced by the central bank of a small open economy. Keywords: Monetary
Full text (open access)
https://repository.uantwerpen.be/docman/irua/0c1e2b/a5af9fbf.pdf
Handle