Publication
Title
International financial integration, credit frictions and exchange rate regimes
Author
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
Language
English
Source (series)
Research paper / University of Antwerp, Faculty of Applied Economics ; 2013:015
Publication
Antwerp : Universiteit Antwerpen, Faculty of Applied Economics, 2013
Volume/pages
66 p.
Full text (open access)
UAntwerpen
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Publications with a UAntwerp address
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Creation 13.03.2014
Last edited 14.03.2014
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