The most relevant conclusions suggest that the narrower the local markets and the fewer the instruments to hedge out currency risk, the better a managed floating exchange rate regime is to maximize social welfare. In a context of imperfect functioning of foreign exchange markets and incomplete capital markets, the adverse effects of a significant depreciation either on inflation or wealth is not negligible.
As an example, in Argentina exchange rate volatility is positively correlated with volatility in retail deposits since depositors perceive the increase in volatility as a growing risk of vanishing of its saving’s purchasing power.