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The currency board arrangement and widespread dollarization of the Argentine economy since 1991 have laid the basis for domestic interest rates to converge to international levels. Although such a convergence has been observed for interest rates on bank deposits, interest rates on bank lending remain well above industrial country levels. This paper examines the causes of high intermediation spreads in Argentina using a dual currency model of the banking industry, which incorporates key features of credit markets in that country. Empirical results allow inferences to be drawn on the effects of macroeconomic and financial policies on bank lending and interest rates.

Banks and Banking --- Money and Monetary Policy --- Industries: Financial Services --- Interest Rates: Determination, Term Structure, and Effects --- Financial Markets and the Macroeconomy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Banking --- Monetary economics --- Finance --- Financial services law & regulation --- Currencies --- Loans --- Exchange rate risk --- Bank credit --- Financial institutions --- Money --- Financial regulation and supervision --- Commercial banks --- Banks and banking --- Financial risk management --- Credit --- Argentina

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The role of exchange rate flexibility in the periphery of the gold standard has been grossly overlooked. This paper builds a new dataset on trade-weighed exchange rates for the period 1870-1913 and finds that large currency movements in periphery countries operating inconvertible paper-money and silver-standard regimes induced major fluctuations in effective exchange rates worldwide. We relate the phenomenon to the international trade structure at the time and show that such currency fluctuations had powerful effects on trade flows. We conclude that nominal exchange rate flexibility in the periphery was an important ingredient of international payments adjustment under the gold standard.

Investments: Metals --- Foreign Exchange --- International Monetary Arrangements and Institutions --- Economic History: Macroeconomics and Monetary Economics --- Growth and Fluctuations: General, International, or Comparative --- Metals and Metal Products --- Cement --- Glass --- Ceramics --- Currency --- Foreign exchange --- Investment & securities --- Exchange rates --- Real effective exchange rates --- Real exchange rates --- Nominal effective exchange rate --- Gold --- Commodities --- United States

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This paper examines the propagation of monetary shocks in a two-good optimizing macromodel where domestic banking activity is costly and the non-tradable sector is highly dependent on domestic bank credit, as in most emerging market economies. The model develops the Bernanke-Blinder “credit view” of the monetary transmission mechanism along classical lines, with no Keynesian rigidities being imposed and the only sources of “imperfection” arising from deposit and credit-in-advance constraints. Using numerical simulations, we show that such a relatively simple model goes a long way toward explaining some key “stylized facts” of recent financial crises.

Banks and Banking --- Labor --- Macroeconomics --- Money and Monetary Policy --- Finance: General --- Financial Markets and the Macroeconomy --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Macroeconomics: Consumption --- Saving --- Wealth --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- General Financial Markets: General (includes Measurement and Data) --- Monetary economics --- Banking --- Labour --- income economics --- Finance --- Bank credit --- Credit --- Consumption --- Money --- National accounts --- Emerging and frontier financial markets --- Financial markets --- Banks and banking --- Economics --- Economic theory --- Financial services industry --- Argentina

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Dollarization in financial intermediation has exhibited a widely diverse pattern across countries. Empirical work relating it to macroeconomic variables has had only limited success in explaining the phenomenon. This paper presents a two-currency banking model to show that deposit and loan dollarization are determined by a broader set of factors. These include interest rates and exchange rate risk, as well as structural factors related to costly banking, credit market imperfections, and availability of tradable collateral. The direction in which dollarization tends to move with macroeconomic shocks is shown to depend on those factors as well as on initial dollarization levels.

Banks and Banking --- Money and Monetary Policy --- Industries: Financial Services --- Interest Rates: Determination, Term Structure, and Effects --- Financial Markets and the Macroeconomy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Monetary economics --- Finance --- Banking --- Financial services law & regulation --- Dollarization --- Currencies --- Loans --- Bank credit --- Monetary policy --- Money --- Financial institutions --- Exchange rate risk --- Financial regulation and supervision --- Banks and banking --- Credit --- Financial risk management --- United States