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Dollarization Persistence and Individual Heterogeneity

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Author Info
Paul Castillo () (London School of Economics, Central Bank of Peru)
Diego Winkelried () (St John’s College, University of Cambridge)

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Abstract

The most salient feature of financial dollarization, and the one that causes more concern to policy makers, is its persistence: even after successful macroeconomic stabilizations, dollarization ratios often remain high. In this paper we claim that this persistence is connected to the fact that the participants in the dollar deposit market are fairly heterogenous, and so is the way they form their optimal currency portfolio.We develop as simple model when agents differ in their ability to process information, which turns out to be enough to generate persistence up on aggregation. We find empirical support for this claim with data from three Latin American countries and Poland.

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Publisher Info
Paper provided by Banco Central de Reserva del Perú in its series Working Papers with number 2007-004.

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Date of creation: Mar 2007
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Handle: RePEc:rbp:wpaper:2007-004

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Related research
Keywords: Dollarization; individual heterogeneity; persistence; aggregation;

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Find related papers by JEL classification:
C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
F30 - International Economics - - International Finance - - - General

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  4. Miguel A. Savastano, 1996. "Dollarization in Latin America - Recent Evidence and Some Policy Issues," IMF Working Papers 96/4, International Monetary Fund.
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  25. repec:rus:hseeco:124089 is not listed on IDEAS
  26. repec:rus:hseeco:123906 is not listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Carlos E. León Rincón & Alejandro Revéiz Herault, 2008. "La dolarización financiera: experiencia internacional y perspectivas para Colombia," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 10(18), pages 313-341, January-J. [Downloadable!]
    Other versions:
  2. Paul Castillo & Alberto Humala & Vicente Tuesta, 2007. "Monetary Policy, Regime Shifts, and Inflation Uncertainty in Peru (1949-2006)," Working Papers 2007-005, Banco Central de Reserva del Perú. [Downloadable!]
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