English, Article, Journal or magazine article edition: Excessive Liability Dollarization in a Simple Signaling Model Besancenot, Damien; Vranceanu, Radu

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Excessive Liability Dollarization in a Simple Signaling Model
Author
  • Besancenot, Damien
  • Vranceanu, Radu
Physical Description
  • preprint
Notes
  • If a dollar denominated external debt comes with so many risks, why do emerging economies allow for such an imbalance to accumulate ? The explanation provided in this paper builds on a simple signaling model. By assumption, lenders have no direct possibility to infer a firm’s financial stance. Therefore sound firms might want to borrow dollars and bear a high clearance cost, just in order to signal their type. The success of this policy depends on the behavior of bad firms. When dollar borrowing clearance costs are relatively small with respect to the clearance cost of borrowing in the local currency, the whole private sector would opt for liability dollarization. In this case the signaling effect vanishes, while all firms bear high clearance costs.
  • Original sin; Signaling; Developing countries; Liability dollarization; Perfect Bayesian Equilibrium
  • RePEc:ebg:essewp:dr-04001
Language
  • English
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