Seigniorage in small-open dollarized economies. The Argentine case

Montevideo

Seminario; Arnoldshain Seminar XVIII Current Challenges in International Economics; 2024

Universidad Nacional de la República

In this paper, we perform a cash-in-advance model in a bimonetary economy due to there is no confidence in the value of the domestic currency. It is assumed that the government finances its fiscal deficit by seigniorage and external debt. In the latter case, individuals demand in advance the dollars that the government obtains through its indebtedness, saving in dollars at time t to finance their transactions at t+1. We also assume that individuals require domestic currency just at the time they purchase non-tradables goods. We find a Bailey curve where hoarding of foreign currency decreases the possibilities of government financing through seigniorage.