Credit Market Imperfections and Exchange Rate Variability

Posted: 11 Dec 2000

See all articles by Wai-Ming Ho

Wai-Ming Ho

York University - Department of Economics


In this paper a two-country overlapping generations model is presented in which the roles of financial factors in the international monetary transmission mechanism are studied and whether and how the two types of credit market imperfections, limited participation and costly state verification, may contribute to the high variability of exchange rates are examined. Liquidity effects generated by monetary disturbances are shown to have qualitatively similar effects on the world economy in the perfect information case and in the costly information case. However, quantitative differences provide different predictions about the variability of economic variables in the world economy.

JEL Classification: F31, F41

Suggested Citation

Ho, Wai-Ming, Credit Market Imperfections and Exchange Rate Variability. Available at SSRN:

Wai-Ming Ho (Contact Author)

York University - Department of Economics ( email )

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