Overshooting and Dollarization in the Democratic Republic of the Congo
May 1, 2003
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Summary
The paper develops an interpretation of volatile exchange rate movements in a dollarized economy with very high rates of inflation. Differences between the rate of inflation and currency depreciation (over- or undershooting of the exchange rate) are seen as a proxy for changes in the relative demand for domestic and foreign currency. A simple model is calibrated for the Democratic Republic of the Congo in the 1990s and is used to derive estimates of the rate of dollarization.
Subject: Currencies, Demand for money, Dollarization, Exchange rates, Foreign exchange, Inflation, Monetary policy, Money, Prices
Keywords: Central Africa, Congo, Currencies, currency, currency depreciation, Demand for money, Democratic Republic of, Dollarization, dollarization rate, dollarization ratio, exchange rate depreciation, Exchange rates, foreign currency, Inflation, inflation expectation, money balance, Overshooting, Sub-Saharan Africa, WAEMU currency zone, WP, Zaïre
Pages:
27
Volume:
2003
DOI:
Issue:
105
Series:
Working Paper No. 2003/105
Stock No:
WPIEA1052003
ISBN:
9781451852844
ISSN:
1018-5941
