Liability Dollarization and the Bank Balance Sheet Channel

By David Cook, W. Choi. Social Science Research Network, 2002

156 citations recorded by the source corpus.

Banks in developing economies often face a mismatch in the currency denomination of their liabilities (foreign currency denominated debt) and assets (domestic currency loans to domestic borrowers). We study the effect of this mismatch on business cycles and monetary policy in a sticky-price, dynamic general equilibrium model of a small open economy. We find from the model analysis that a fixed exchange rate rule that stabilizes the balance sheets of banks offers greater stability than an interest rate rule that targets inflation in the sticky-price sector of the economy.

View Paper: https://www.semanticscholar.org/paper/a6a16dc733d2fccd5244be1bbfc50be252af9a0b

Citations in the corpus

• Self-oriented monetary policy, global financial markets and excess volatility of international capital flows (2015, unknown): “We construct a quarterly measure of US monetary policy shocks, MSt, by aggregating the Coibion et al. (2012) US monetary policy shocks from each meeting in a given quarter.”
• Exchange Rates and Monetary Policy in Emerging Market Economies (2004, unknown): “3The result of Céspedes et al. (2002a, 2002b) contrast with those of Cook (2004) and Choi and Cook (2004).”