Currency Choice in Contracts

• 成果类型: Article
• 署名作者: Drenik, Andres; Kirpalani, Rishabh; Perez, Diego J.
• 署名单位: University of Texas System; University of Texas Austin; University of Wisconsin System; University of Wisconsin Madison; New York University; National Bureau of Economic Research
• 刊物名称: REVIEW OF ECONOMIC STUDIES
• ISSN/ISSBN: 0034-6527
• DOI: 10.1093/restud/rdab093
• 发表日期: 2022
• 页码: 2529-2558
• 关键词: monetary-policy; exchange-rates; price; MODEL; debt; RISK

摘要

We study the interaction between the currency choice of private domestic contracts and optimal monetary policy. The optimal currency choice depends on the price risk of each currency, as well as on the covariance of its price and the relative consumption needs of the agents signing the contract. When a larger share of contracts is denominated in local currency, the government can use inflation more effectively to either redistribute resources or reduce default costs, which makes local currency more attractive for private contracts. When governments lack commitment, competitive equilibria can be constrained inefficient, thus providing a reason to regulate the currency choice of private contracts. We show that both the equilibrium use of local currency and the implications for regulation depend on the level of domestic policy risk. Our model can explain the wide use of the US dollar in international trade contracts and the observed hysteresis in dollarization.