We study the aggregate and re-distributive effects of currency devaluations in a small open economy heterogeneous households model with leverage-constrained banks. Our framework captures three stylized facts about liability dollarization in emerging economies: i) banks and firms borrow in...

We isolate a U.S. dollar currency premium by comparing corporate bonds issued in the dollar and the euro by firms o utside t he U .S. a nd e uro a rea. We make s everal empirical observations that dissect the perceived advantage of borrowing in the dollar. First, while the dollar dominates...

This paper estimates and tests four models of the effects of exchange rate changes on export prices. It supports the Goldberg and Knetter (1997) canonical result that exporters adjust their prices by about half of any movement in exchange rates. A new twist is that exchange rate movements...

In recent years, Bolivia has accumulated a significant level of international reserves due to favorable external environment and the exchange rate regimen (crawling peg). In this context arises the question of: Which one is the optimal level of international reserves? According to the...

Official holdings of US dollar reserves are partly invested outside the United States. These offshore investments do not strictly speaking finance the US current account, but do support the US dollar. Offshore holdings grow fast when intervention is large

The strength of the US dollar has attributes of a barometer of dollar credit conditions, whereby a stronger dollar is associated with tighter dollar credit conditions. Using finely disaggregated data on export shipments, we examine how dollar strength impacts exports through the lens of dollar...

In March 2020, the Federal Reserve eased the terms on its standing swap lines in collaboration with other central banks, reactivated temporary swap agreements, and then introduced the new Foreign and International Monetary Authorities (FIMA) Repo Facility. We provide new evidence on how the...

The recent collapse of the Argentine currency board raises new questions about the desirability of formal fixed exchange rate regimes in modern developing economies. This paper examines the impact of dollarized liabilities with potential default for a currency board with costly abandonment. We...

Milton Friedman's longstanding advocacy in favor of floating exchange rates has contributed to a mistaken belief that he opposed currency board regimes or outright dollarization. Nothing could be further from the truth. Over a period of almost five decades Friedman consistently made it clear...

One of the main reasons to dollarize an emerging market economy is to eliminate high, persistent, and volatile inflation. To be effective, dollarization must generate sufficient credibility, which in turn depends critically on whether its expected probability of reversal is low. Argentina once...