Exchange Rate Regimes And Financial-Market Imperfections
- Topics:
- Quantitative Analysis
- Tags:
- Exchange Rate,
- Finance,
- Financial Accounting,
- Free Trade,
- Managerial Accounting,
- National Bureau Of Economic Research,
- Working Capital
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Overview: This paper investigates the design of an exchange rate policy for an economy where the domestic capital market is segmented from the global financial market, producers rely on credit to finance working capital needs, and the labor market is characterized by nominal contracts. We show that the choice of an exchange rate regime is intertwined with the financial structure -- greater reliance on working capital to finance input needs, and greater segmentation of the domestic capital market increase the desirable exchange rate stability. This result follows from the observation that greater exchange rate stability is likely to reduce the real interest rate facing the producer, thereby increasing output.
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Format: PDF | Size: 392KB | Date: Jun 2000 | Pages: 22
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