Abstract
This paper employs a conventional small open economy portfolio balance macromodel to unveil new implications of currency substitution. Increased substitutability between foreign and domestic currency is found to affect the response of the exchange rate of both asset market and commodity market shocks. In particular, the extent of exchange rate overshooting and undershooting depends on the degree of currency substitution.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.