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Book/Printed Material Exchange rate volatility and the credit channel in emerging markets A vertical perspective

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Title

  • Exchange rate volatility and the credit channel in emerging markets A vertical perspective

Summary

  • "Firms in emerging markets are exposed to severe financial frictions and credit constraints, that are exacerbated by the sudden stop of capital inflows. Can monetary policy offset this external credit squeeze? We show that although this may be the case during moderate contractions (or in partial equilibrium), the expansionary effect of monetary policy vanishes during severe external crises. The exchange rate jumps to reduce the dollar value of domestic collateral until equilibrium in domestic financial markets is consistent with the external constraint. An expansionary monetary policy in this context raises the value of domestic collateral but it exacerbates the exchange rate depreciation (beyond the standard interest parity effect) and has little effect on aggregate activity. However there is a dynamic linkage between monetary policy and sudden stops. The anticipation of a dogged defense of the exchange rate worsens the consequences of sudden stops by distorting the private sector incentive to take precautions against these shocks. For similar general equilibrium reasons, dollarization of liabilities has limited impact during a sudden stop, but it has significant underinsurance consequences"--National Bureau of Economic Research web site.

Names

  • Caballero, Ricardo J.
  • Krishnamurthy, Arvind
  • National Bureau of Economic Research

Created / Published

  • Cambridge, MA : National Bureau of Economic Research, c2004.

Headings

  • -  Credit
  • -  Foreign exchange rates
  • -  Mixed economy

Notes

  • -  Title from PDF file as viewed on 1/12/2005.
  • -  Includes bibliographical references.
  • -  Also available in print.
  • -  Mode of access: World Wide Web.
  • -  System requirements: Adobe Acrobat Reader.

Call Number/Physical Location

  • HB1

Digital Id

Library of Congress Control Number

  • 2005615144

Access Advisory

  • Unrestricted online access

Online Format

  • image
  • pdf

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Cite This Item

Citations are generated automatically from bibliographic data as a convenience, and may not be complete or accurate.

Chicago citation style:

Caballero, Ricardo J, Arvind Krishnamurthy, and National Bureau Of Economic Research. Exchange rate volatility and the credit channel in emerging markets A vertical perspective. Cambridge, MA: National Bureau of Economic Research, 2004. Pdf. https://aj.sunback.homes/item/2005615144/.

APA citation style:

Caballero, R. J., Krishnamurthy, A. & National Bureau Of Economic Research. (2004) Exchange rate volatility and the credit channel in emerging markets A vertical perspective. Cambridge, MA: National Bureau of Economic Research. [Pdf] Retrieved from the Library of Congress, https://aj.sunback.homes/item/2005615144/.

MLA citation style:

Caballero, Ricardo J, Arvind Krishnamurthy, and National Bureau Of Economic Research. Exchange rate volatility and the credit channel in emerging markets A vertical perspective. Cambridge, MA: National Bureau of Economic Research, 2004. Pdf. Retrieved from the Library of Congress, <aj.sunback.homes/item/2005615144/>.