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- Title
The Dollarization of a Small Economy.
- Authors
Lamdany, Ruben; Dorlhiac, Jorge
- Abstract
Abstract Within a utility maximizing framework we study the effects of replacing the national currency with the dollar in a small, open economy. The impact effect is a drop in the levels of liquidity and wealth. The economy reaccumulates real balances by reducing consumption and showing a trade surplus. The welfare implications of the program depend on the social rate of time preference and the inflation rate differential. We show that the U.S. can improve both its own welfare and that of the small country's by "bribing" it into switching currencies. We study how these results change with the introduction of capital mobility.
- Subjects
UNITED States; MONEY; DOLLAR; ECONOMICS; CAPITAL movements
- Publication
Scandinavian Journal of Economics, 1987, Vol 89, Issue 1, p91
- ISSN
0347-0520
- Publication type
Article
- DOI
10.2307/3440486