Multiple reserve requirements, exchange rates, sudden stops and equilibrium
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Date
2009-03
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Abstract
We model a typical Asian-crisis-economy using dynamic general equilibrium techniques. Meaningful exchange rates obtain from nontrivial demands for flat currencies. Sudden stops/bank-panics are possible, and key for evaluating the relative merits of alternative exchange rate regimes in promoting stability. Strategic complementarities contribute to the severe indeterminancy of the continuum of equilibria; there is a strong association between the scope for existence and indeterminancy of equilibria, the properties along dynamic paths and the underlying policy regime. Binding multiple reserve requirements reduce the scope for financial frgility and panic equilibria; backing the money suplply acts as a stabilizer only in fixed regimes
Description
56 page PDF document. JEL Classification: E32, E44, F41. Submitted through Munich Personal RePEc Archive.
Keywords
multiple reserve requirements, exchange rates, sudden stops/bank panics