Institutional barriers shape exchange rates in emerging markets, impacting currency competition.
The article discusses how countries can deal with currency competition by either reducing inflation or imposing barriers on foreign currency use. The researchers created a model to show how these barriers can affect the value of currencies differently at home and abroad. They also studied how restrictions on capital and financial accounts in certain countries can impact exchange rates in the short term. Additionally, they developed a model to explain why the black market premium on foreign currency can vary based on inflation rates.