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Regional Inflation and Financial Dollarization

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  • Brown, Martin
  • Haas, Ralph De
  • Sokolov, Vladimir

Abstract

We exploit variation in consumer price inflation across 71 Russian regions to examine the relationship between the perceived stability of the domestic currency and financial dollarization. Our results show that regions with higher inflation experience an increase in deposit dollarization and a decrease in the dollarization of loans to households and firms in non-tradable sectors. The negative impact of inflation on credit dollarization is weaker in regions with less integrated banking markets. This suggests that the asset-liability management of banks constrains the currency-portfolio choices of both households and firms without a natural currency hedge.

Suggested Citation

  • Brown, Martin & Haas, Ralph De & Sokolov, Vladimir, 2015. "Regional Inflation and Financial Dollarization," HIT-REFINED Working Paper Series 22, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:remfce:22
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    Cited by:

    1. Davydova, Yulia & Sokolov, Vladimir, 2014. "The real effects of financial constraints: Evidence from a debt subsidization program targeted at strategic firms," Journal of Empirical Finance, Elsevier, vol. 29(C), pages 247-265.
    2. Ongena, Steven & Schindele, Ibolya & Vonnák, Dzsamila, 2021. "In lands of foreign currency credit, bank lending channels run through?," Journal of International Economics, Elsevier, vol. 129(C).
    3. Ajide, Kazeem B. & Raheem, Ibrahim D. & Asongu, Simplice A., 2019. "Dollarization and the “unbundling” of globalization in sub-Saharan Africa," Research in International Business and Finance, Elsevier, vol. 47(C), pages 398-409.
    4. Aiba, Daiju & Odajima, Ken & Khou, Vouthy, 2017. "Foreign Currency Borrowing and Risk-Hedging Behavior: Evidence from a Household Survey in Cambodia," Working Papers 143, JICA Research Institute.
    5. Maria Semenova & Andrey Shapkin, 2019. "Currency Shifts as a Market Discipline Device: The Case of the Russian Market for Personal Deposits," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(10), pages 2149-2163, August.
    6. Pierre LESUISSE, 2017. "External Monetary Shocks to Central and Eastern European Countries," Working Papers 201705, CERDI.
    7. Ibrahim D. Raheem, 2018. "Inflation rate of 14–16% is fair for the sub-Saharan African dollarization," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(4), pages 779-794, October.
    8. Pál Péter Kolozsi & Csaba Lentner, 2020. "Consolidation and Legacy of Foreign Currency Household Lending in Central and Eastern Europe: The Case of Hungary," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 14(3), September.
    9. Pierre Lesuisse, 2019. "External Monetary Shocks to Central and Eastern European Countries," Working Papers halshs-01467330, HAL.

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    More about this item

    Keywords

    Financial dollarization; financial integration; regional inflation;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • P22 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Prices
    • P24 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation

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