Essays on Macroeconomic Performance Under Alternative Exchange Rate Regimes

Download or read book Essays on Macroeconomic Performance Under Alternative Exchange Rate Regimes written by Christian Miguel Broda and published by . This book was released on 2001 with total page 100 pages. Available in PDF, EPUB and Kindle. Book excerpt: (Cont.) Uncertainty and the behavior of the monetary authority can affect the wage setting behavior of private agents. Under a peg, agents require a wage premium relative to floats, to be compensated for the higher variability in employment. This, in turn, implies a higher consumption based price level. However, an endogenous choice of the exchange rate regime and a less than fully accommodating policy in floats can potentially undo this result. Finally, the third chapter provides a simple dynamic framework to study the relation between the banking sector's safety nets and the share of foreign currency (dollar) deposits. When deposit and bank insurance schemes that do not discriminate between currencies they introduce a cross-transfer from local currency (peso) to dollar deposits that favors deposit dollarization and results in an increased currency exposure of banks. Second, the presence of a lender of last resort, by reducing the cost of risk to banks, stimulates dollar financing.