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Financial Dollarization Equilibria: A Framework for Policy Analysis

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  • Mr. Alain Ize

Abstract

Rapidly rising dollarization and numerous related financial crises in recent years have heightened the need for policy action. This paper contributes to the policy debate by presenting a common analytic framework that examines the roots of de facto financial dollarization under different economic environments and analyzes its interplay with monetary and prudential policies. In addition to providing a systematic analysis of the existence, stability, and multiplicity of dollarization equilibria, the paper makes a few novel contributions. In particular, it stresses the key role played by monetary policy endogeneity and identifies the underlying determinants of the peso premium that are responsible for inducing a preference for the dollar in financial transactions.

Suggested Citation

  • Mr. Alain Ize, 2005. "Financial Dollarization Equilibria: A Framework for Policy Analysis," IMF Working Papers 2005/186, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2005/186
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    References listed on IDEAS

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    1. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 379-408.
    2. Broda, Christian & Yeyati, Eduardo Levy, 2006. "Endogenous Deposit Dollarization," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 963-988, June.
    3. Galindo, Arturo & Panizza, Ugo & Schiantarelli, Fabio, 2003. "Debt composition and balance sheet effects of currency depreciation: a summary of the micro evidence," Emerging Markets Review, Elsevier, vol. 4(4), pages 330-339, December.
    4. Nicolo, Gianni De & Honohan, Patrick & Ize, Alain, 2005. "Dollarization of bank deposits: Causes and consequences," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1697-1727, July.
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    Cited by:

    1. Mr. Robert Rennhack & Mr. Masahiro Nozaki, 2006. "Financial Dollarization in Latin America," IMF Working Papers 2006/007, International Monetary Fund.
    2. Calvo-Gonzalez, Oscar & Basso, Henrique S. & Jurgilas, Marius, 2007. "Financial dollarization: the role of banks and interest rates," Working Paper Series 748, European Central Bank.
    3. Amira Karimova & Ahmet Caliskan & Jamshid Karimov, 2015. "Dollarization and External Sustainability of Turkey," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 3(2), pages 1-11.
    4. Mr. Eduardo Levy Yeyati & Mr. Alain Ize, 2005. "Financial De-Dollarization: Is it for Real?," IMF Working Papers 2005/187, International Monetary Fund.
    5. Juan F. Castro & Eduardo Morón, 2005. "Financial Dollarization and the Size of the Fear," Macroeconomics 0509027, University Library of Munich, Germany.
    6. Rossi Jr, José Luiz, 2009. "Corporate financial policies and the exchange rate regime: Evidence from Brazil," Emerging Markets Review, Elsevier, vol. 10(4), pages 279-295, December.
    7. Mr. Esteban Vesperoni & Walter Orellana R., 2008. "Dollarization and Maturity Structure of Public Securities: The Experience of Bolivia," IMF Working Papers 2008/157, International Monetary Fund.
    8. repec:cbh:journl:v:14:y:2015:i:3:p:60-87 is not listed on IDEAS
    9. Juan‐Sebastian Corrales & Patrick Amir Imam, 2021. "Financial dollarization of households and firms: How does it differ by level of economic development?," Review of International Economics, Wiley Blackwell, vol. 29(4), pages 927-978, September.
    10. Basso, Henrique S. & Calvo-Gonzalez, Oscar & Jurgilas, Marius, 2011. "Financial dollarization: The role of foreign-owned banks and interest rates," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 794-806, April.
    11. Metin-Özcan, Kıvılcım & Us, Vuslat, 2007. "Dedollarization in Turkey after decades of dollarization: A myth or reality?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 385(1), pages 292-306.
    12. Ms. Anna Ilyina & Ms. Anastasia Guscina & Herman Kamil, 2010. "Does Procyclical Fiscal Policy Reinforce Incentives to Dollarize Sovereign Debt?," IMF Working Papers 2010/168, International Monetary Fund.
    13. Dzmitry Kruk, 2013. "Belarus' Anti-Crisis Management: Success Story of Delayed Recession?," Europe-Asia Studies, Taylor & Francis Journals, vol. 65(3), pages 473-488.
    14. Branko Urošević & Ivana Rajković, 2017. "Dollarization of Deposits in the Short and Long Run: Evidence from CESE Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 64(1), pages 31-44, December.
    15. 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.
    16. Marcelin, Isaac & Mathur, Ike, 2016. "Financial sector development and dollarization in emerging economies," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 20-32.

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