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Journals / Central Bank Review / 2008 / Cilt: 8 - Sayı: 2

Monetary policy and external shocks in a dollarized economy with credit market imperfe ctions

Koray ALPER
Pages
32–73
DOI
—
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AI Summary & Key Takeaways

AI Insight
⚡ TL;DR(Too Long; Didn't Read)

We show that the conventional effects of monetary and external shocks might be reversed in such a setting.

📌 3 Key Takeaways

🎯
Objective & Hypothesis:This paper analyses the transmission of monetary and external shocks in a dollarized economy by making use of a small, static analytical model, which dwells on Agénor and Montiel (2006, 2007).
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Key Findings & Data:Fluctuations in the exchange rate affect the net worth of the banks and so the cost of foreign resources which is, in turn, reflected into domestic lending rates.
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Conclusion & Impact:We show that the conventional effects of monetary and external shocks might be reversed in such a setting.
🔬Design:Modeling & Simulation
📍Scope:2006 Verileri
⚙️Variables:risk · risk

Abstract

This paper analyses the transmission of monetary and external shocks in a dollarized economy by making use of a small, static analytical model, which dwells on Agénor and Montiel (2006, 2007). The focus is particularly on the implications of endogenous country risk premium on the transmission of shocks. Endogenous risk premium arises from the imperfect information in international capital markets. As is the case for literature on credit market imperfections, net worth of the banks intermediating between the domestic investors and international capital markets, is the main determinant of countrys risk premium. Fluctuations in the exchange rate affect the net worth of the banks and so the cost of foreign resources which is, in turn, reflected into domestic lending rates. We show that the conventional effects of monetary and external shocks might be reversed in such a setting.

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Cite This Article

ALPER, K. (2008). Monetary policy and external shocks in a dollarized economy with credit market imperfe ctions. Central Bank Review, Cilt: 8 - Sayı: 2, 32–73. https://ajindex.com/articles/151037

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References (8)

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