The increase in dollarisation in Cambodia has been contrary to the general belief that macroeconomic and political stability help reduce dollarisation. We provide so far the first explanation for this counterfactual phenomenon. In doing so, this paper develops a cash-in-advance model by...

Emerging market firms frequently borrow in foreign currency (FX), but their assets are often denominated in domestic currency. This behavior leads to an FX mismatch on firms balance sheets, which can harm their net worth in the event of a depreciation. I use a large, unanticipated, and exogenous...

This paper studies welfare gains from disinflation in the presence of currency substitution. A distinctive small open economy model with currency substitution and intermediated working capital is constructed for this objective. It is found that welfare gains from disinflation are higher when the...

The paper employs a post-Kaleckian model to address the question of how currency devaluations affect aggregate demand, capital accumulation, and debt in an economy with foreign currency liabilities. In benchmark post-Kaleckian open economy models currency devaluations have two key effects....

This paper compares the welfare costs of business cycles in a dollarized economy to those arising in economies with different monetary arrangements. The alternative monetary policy regimes studied belong to three broad families: devaluation rate rules, inflation targeting, and money growth rate...

This paper analyzes the relationship among inflation, dollarization, financial intermediation, and real activity. Empirical evidence suggests non-linearity in the effects of inflation on financial intermediation and real activity, i.e., the existence of an inflation threshold. Evidence also...

It is a known fact that the use of foreign currency by domestic residents shows significance persistence, even hysteresis. Temporary changes in the inflation rate can have permanent effects on the degree of currency substitution, as illustrated by the case of Bolivia, where dollarization has...

The impact of an unanticipated monetary shock in a small open economy with dollarization, factor price rigidities, and nontradeables is re-examined in an optimizing intertemporal general equilibrium model. The framework of an earlier study is extended to incorporate foreign real money balances...

This paper discusses the role of sterilized foreign exchange (FX) interventions as a monetary policy instrument for emerging market economies in response to external shocks. We develop a model for a commodity-exporting small open economy in which FX intervention is considered as a balance sheet...