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Financial dollarization and currency substitution: an empirical study for Bolivia

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  • Dell'Erba, Salvatore
  • Saldías Zambrana, Martin

Abstract

The Bolivian puzzle is high and persistent financial dollarization notwithstanding deep macroeconomic stabilization that achieved stable and low inflation and the regulations encouraging domestic currency deposits. We analyze traditional and new approaches to explain dollarization in Bolivia. We first assess the currency substitution approach and then assess the empirical evidence for the financial dollarization approach. The results show that the macroeconomic variables capture only partially the phenomenon and a better assessment relies on other explanations such as the peso problem and the analysis of specific characteristics of the financial markets in Bolivia.

Suggested Citation

  • Dell'Erba, Salvatore & Saldías Zambrana, Martin, 2006. "Financial dollarization and currency substitution: an empirical study for Bolivia," Kiel Advanced Studies Working Papers 432, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwasw:432
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    References listed on IDEAS

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    More about this item

    Keywords

    Dollarization; Exchange rate regimes; Inflation; Bolivia;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • G19 - Financial Economics - - General Financial Markets - - - Other

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