Please use this identifier to cite or link to this item: http://hdl.handle.net/1822/1320

TitleThe dynamics of inflation and currency substitution in a small open economy
Author(s)Freitas, Miguel Lebre de
KeywordsCurrency substitution
Dollarisation
Money-demand and hysteresis
Issue date2004
PublisherUniversidade do Minho. Núcleo de Investigação em Políticas Económicas (NIPE)
Series/Report no.Working paper series / NIPE
1
Abstract(s)The Dynamics of Inflation and Currency Substitution in a Small Open Economy Abstract: In this paper, we analyse the relationship between money and inflation in a small open economy where domestic and foreign currencies are perfect substitutes as means of payment. It is shown that, if the path of domestic money supply is such that individuals find it optimal to change the currency in which transactions are settled, there will be an adjustment period during which domestic inflation adjusts so as to equalise the foreign inflation rate. In the case of a disinflation program, it is shown that the foreign currency is not necessarily abandoned as means of payment. The results obtained are consistent with both dollarisation hysteresis and reversibility, without requiring the specification of dollarisation costs.
TypeWorking paper
URIhttp://hdl.handle.net/1822/1320
AccessOpen access
Appears in Collections:NIPE - Documentos de Trabalho

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