TitleEssays on exchange rate, monetary and fiscal policies in dollarized economies
NamePalacios-Salguero, Luis (author), Chang, Roberto (chair), Bordo, Michael (internal member), Mizrach, Bruce (internal member), Sapriza, Horacio (outside member), Rutgers University, Graduate School - New Brunswick,
Foreign exchange rates
DescriptionMy dissertation has four chapters. I use dynamic stochastic general equilibrium (DSGE) models to study the welfare implications of exchange rate, monetary, and fiscal policies in de facto dollarized economies. Dollarization is a common phenomenon in emerging economies. In many of them economic agents hold liabilities in foreign currency while most income is earned in domestic currency. Thus, a sudden depreciation of the domestic currency may cause significant adverse effects on domestic agents' wealth and welfare. That is why governments try to design and implement macroeconomic policies that help reduce these adverse effects. My work aims at contributing to the design and implementation of these policies. In the first chapter, I study alternative exchange rate regimes in a dollarized economy. I develop a DSGE model and pursue Bayesian estimation using data from Singapore. The main conclusion is that the flexible exchange rate regime is better than the fixed exchange rate. In the second chapter, I work on an extension of my first chapter by introducing nontradable goods, which allows me to study a broader set of exchange rate regimes in a dollarized economy. I develop a DSGE model and pursue Bayesian estimation using data from Peru. The main conclusion is that a policy that pegs the domestic currency price of exports is better than a flexible exchange rate regime that targets the consumer price index, which in turn is better than the fixed exchange rate. The third chapter studies the optimal fiscal rule for a dollarized economy. Using a DSGE model with endogenous dollarization, I obtain that an optimal fiscal rule should take into account deviations (from their steady state values) of the level of government debt, government spending, and inflation. The fourth chapter characterizes the optimal exchange rate policy in a dollarized economy using a method developed by Devereux and Sutherland (2007, 2008). The method allows me to use a DSGE model in order to compute the optimal currency composition of the portfolio of (foreign) liabilities in the long-run equilibrium and its dynamics. The main finding is that the flexible exchange rate is better than the fixed rate.
NoteIncludes bibliographical references
Noteby Luis V. Palacios-Salguero
CollectionGraduate School - New Brunswick Electronic Theses and Dissertations
Organization NameRutgers, The State University of New Jersey
RightsThe author owns the copyright to this work.