Journal article
Currency substitution, risk premia and the Taylor principle
Journal of economic dynamics & control, v 48, pp 202-217
Nov 2014
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
This paper studies the equilibrium determinacy properties of a simple interest rate rule in a small open economy subject to currency substitution (i.e., the use of a foreign currency for domestic transactions) and risk premia on foreign borrowing. It shows that if currencies are substitute in the provision of liquidity services the rule׳s response to inflation has to be sufficiently above unity for the equilibrium to be locally determinate. This reinforced Taylor principle requirement appears to be more binding in economies characterized by a larger elasticity of currency substitution, more debt-elastic country risk premia, and intermediate degrees of dollarization in transactions.
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Details
- Title
- Currency substitution, risk premia and the Taylor principle
- Creators
- Marco Airaudo - Drexel University
- Publication Details
- Journal of economic dynamics & control, v 48, pp 202-217
- Publisher
- Elsevier
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000345179200012
- Scopus ID
- 2-s2.0-84909647681
- Other Identifier
- 991019168382504721
UN Sustainable Development Goals (SDGs)
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Source: SDGs in the Output
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- Web of Science research areas
- Economics