The relationship between investment and large exchange rate depreciations in dollarized economies

We use a simple financial friction in an economy with high degree of liability dollarization to show that the negative balance-sheet effect of an exchange rate depreciation may be observable only if the magnitude of the depreciation is large enough. This result justifies the difficulty to find strong empirical evidence for balance-sheet effects and suggests the convenience of including a "large depreciation" term in empirical analyses.

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Authors:	Carranza, Luis ; Sánchez, José Enrique Galdón ; Biscarri, Javier Gómez
Institutions:	School of Economics and Business Administration, University of Navarra

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Extent:	application/pdf
Series:	Faculty Working Papers.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 01/08 15 pages
Classification:	F31 - Foreign Exchange ; F33 - International Monetary Arrangements and Institutions
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005568756