• Login
View Item 
  • DASH Home
  • Harvard Kennedy School
  • HKS Center for International Development
  • View Item
  • DASH Home
  • Harvard Kennedy School
  • HKS Center for International Development
  • View Item
JavaScript is disabled for your browser. Some features of this site may not work without it.

Browse

All of DASH
  • Communities & Collections
  • By Issue Date
  • Author
  • Title
  • Keyword
  • FAS Department
This Collection
  • By Issue Date
  • Author
  • Title
  • Keyword

Submitters

  • Login
  • Quick submit
  • Waiver Generator

About

  • About DASH
  • DASH Stories
  • DASH FAQs
  • Accessibility
  • COVID-related Research
  • Terms of Use
  • Privacy Policy

Statistics

  • By Schools
  • By Collections
  • By Departments
  • By Items
  • By Country
  • By Authors

Monetary Policy and the Currency Denomination of Debt: A Tale of Two Equilibria

 
Thumbnail
View/Open
106.pdf (309.1Kb)
Author
Chang, Roberto
Velasco, Andrés
Published Version
https://www.hks.harvard.edu/centers/cid/publications
Metadata
Show full item record
Citation
Chang, Roberto, and Andrés Velasco. “Monetary Policy and the Currency Denomination of Debt: A Tale of Two Equilibria.” CID Working Paper Series 2004.106, Harvard University, Cambridge, MA, September 2004.
Abstract
Exchange rate policies depend on portfolio choices, and portfolio choices depend on anticipated exchange rate policies. This opens the door to multiple equilibria in policy regimes. We construct a model in which agents optimally choose to denominate their assets and liabilities either in domestic or in foreign currency. The monetary authority optimally chooses to float or to fix the currency, after portfolios have been chosen. We identify conditions under which both fixing and floating are equilibrium policies: if agents expect fixing and arrange their portfolios accordingly, the monetary authority validates that expectation; the same happens if agents initially expect floating. We also show that a flexible exchange rate Pareto-dominates a fixed one. It follows that social welfare would rise if the monetary authority could precommit to floating.
Terms of Use
This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page
http://nrs.harvard.edu/urn-3:HUL.InstRepos:42406325

Collections
  • HKS Center for International Development [578]

Contact administrator regarding this item (to report mistakes or request changes)

e: osc@harvard.edu

t: +1 (617) 495 4089

Creative Commons license‌Creative Commons Attribution 4.0 International License

Except where otherwise noted, this work is subject to a Creative Commons Attribution 4.0 International License, which allows anyone to share and adapt our material as long as proper attribution is given. For details and exceptions, see the Harvard Library Copyright Policy ©2022 Presidents and Fellows of Harvard College.

  • Follow us on Twitter
  • Contact
  • Harvard Library
  • Harvard University