Matthias Meier (University of Mannheim) will present the results of his joint project with Vadym Lepetyuk (NBU) on "Foreign cash, business cycle propagation, and policy implications".
Abstract:
We study the role of foreign cash for business cycle propagation in a small open economy model. We calibrate the model to Ukraine, which is a highly dollarized economy, characterized by large levels and fluctuations in the aggregate net inflow of foreign cash. In the model, the responses of foreign cash holdings mitigate the effects of technology shocks but amplify the effects of demand shocks.
We use the model to study the effectiveness of interventions on foreign exchange markets. We show that the capability of such interventions to stabilize the economy depends crucially on the nature of shocks.
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