This paper examines the persistence of dollarization in two of the most dollarized countries in Latin America, Bolivia and Puru. Dollarization is related not only to the expected rate or devaluation but also to devaluation uncertainty, proxied by the conditional variance of the rate of...

In the context of a perfect foresight, intertemporal optimizing, cash-in-advance model, this paper studies the dynamics of an inconsistent exchange rate-based stabilization policy-a policy that fixes the exchange rate without an underlying fiscal adjustment to ensure that the exchange rate...

The study deals with the international transmission of economic shocks, their consequences for exchange rates and the reconciliation of exchange rate management with monetary policy. The theoretical part of the study consists of a mainstream model of two large, interdependent economies with...

Central banks adopt an inflation targeting policy with a goal to anchor inflation expectations. We argue that the expectations anchoring test developed in the context of the Krugman (1991) exchange rate targeting model is well-suited for inflation targeting applications. The test quantifies...

On the international scene, away from national legal rules, the use of different currencies is largely due to the operation of the 'Invisible Hand'. The paper develops a three-country model of the world economy and links real trade patterns with currency exchange structures in a general...