Highly volatile exchange rate don't come cheap in economies with large liability dollarization ratios. Therefore, central banks do no follow a unique objective of price stability but its preferences include an implicit exchange rate objective. This gives us reasons to believe that the Peruvian exchange rate could be characterized as a phony floater. We found evidence suggesting an implicit defense on the level of the exchange rate. Going beyond the argument of fear of floating as a key explanation for this, we explore the reason behind the fear and the need of following certain objectives in liability dollarized economies.
|Place of Publication||Rochester, NY|
|State||Published - 1 Oct 2000|
- central bank preferences
- floating exchange rates