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1 – 10 of 363Propensity to dollarize in Latin America in the demand-side of some economies of the region has a strong political risk component which, in the past, was mainly carried out by…
Abstract
Propensity to dollarize in Latin America in the demand-side of some economies of the region has a strong political risk component which, in the past, was mainly carried out by inflationary pressures. Coping with risk meant holding FCDs. A recursive multilevel model is developed and empirically tested with Colombia’s data to stress a country-specific tendency to dollarize due to political risk. The chapter’s conclusions suggest that consideration of issues, policies and implications inherent to the decision to dollarize cannot ignore that, the solution to any government-enforced dilemma in the supply-side of these economies, is also politically motivated. Results of a survey are also provided.
Wassim N. Shahin and Fadi G. Freiha
After reviewing the theoretical and empirical literature on currency substitution, a model is used in this chapter to empirically examine the state of dollarization in Middle East…
Abstract
After reviewing the theoretical and empirical literature on currency substitution, a model is used in this chapter to empirically examine the state of dollarization in Middle East and North African countries, using Lebanon and Egypt as case studies. For Lebanon, despite the decline in inflationary expectations, the expectations of currency depreciation, and an increase in real interest rate differentials between domestic and foreign currencies, dollarization did not decline by the anticipated amount. For Egypt, unlike many Latin American Countries, currency substitution was successfully reversed for a period when the government managed to peg the value of the Egyptian pound to the dollar.
This chapter explains dollarization process in Turkey by an extended portfolio model where dollarization is determined by the relative rates of return of domestic and foreign…
Abstract
This chapter explains dollarization process in Turkey by an extended portfolio model where dollarization is determined by the relative rates of return of domestic and foreign currencies denominated assets, expected change in the exchange rate, exchange rate risk, and credibility of current economic policies. The econometrics results are in line with the intuitive predictions of the model. We have found that interest rate differential and the expected exchange rates are the dominant variables in determining dollarization. This chapter also provides evidence of inertia in the process of dollarization in Turkey.
Simplice Asongu, Ibrahim Raheem and Venessa Tchamyou
Financial dollarisation in sub-Saharan Africa (SSA) is most persistent compared to other regions of the world. The purpose of this paper is to complement the existing scant…
Abstract
Purpose
Financial dollarisation in sub-Saharan Africa (SSA) is most persistent compared to other regions of the world. The purpose of this paper is to complement the existing scant literature on dollarisation in Africa by assessing the role of information sharing offices (public credit registries and private credit bureaus) on financial dollarisation in 25 SSA countries for the period 2001-2012.
Design/methodology/approach
The empirical evidence is based on ordinary least squares and generalised method of moments (GMM).
Findings
The findings show that information sharing offices (which are designed to reduce information asymmetry) in the banking industry are a deterrent to dollarisation. The underpinning assumption that financial development reduces financial dollarisation is confirmed.
Originality/value
There is scant literature on the relevance of information sharing offices in development outcomes in Africa. While the establishment of these offices in most countries in the continent began in 2004, scholarship on the importance of these offices in financial development is sparse.
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Lula G. Mengesha and Mark J. Holmes
The purpose of this paper is to address the unresolved outcome of the research on the impact of dollarization on inflation by examining the partially dollarized economy of…
Abstract
Purpose
The purpose of this paper is to address the unresolved outcome of the research on the impact of dollarization on inflation by examining the partially dollarized economy of Eritrea.
Design/methodology/approach
Inflation under partial dollarization is modelled based on money demand and supply framework. Using quarterly data for the study period 1996Q1-2008Q4, estimation is based on a vector error correction model together with dynamic ordinary least square.
Findings
The results indicate that inflation increases as a result of an increase in dollarization. This applies to both the short-run and long-run estimations regardless of whether official or black market exchange rate data are used in the analysis. In terms of the short-run dynamics involved in the long-run relationship between dollarization and inflation, the speed of adjustment toward long-run equilibrium ranges from negative 7.2-7.6 percent per quarter.
Research limitations/implications
The main policy implication of the finding is that the extent of dollarization should not be overlooked in controlling inflation in the short run and the long run.
Originality/value
Despite a number of studies that examine the consequences of dollarization, the impact of partial dollarization on inflation in the Eritrean economy has never been addressed. This study, therefore, is original in its kind and resolves the controversial outcomes on the studies of inflation and dollarization by modelling inflation under partial dollarization, providing new evidence and revealing potential economic reasons for the discrepancies in the findings of the literature on partial dollarization.
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Rémy Herrera and Paulo Nakatani
The Cuban dollarization is an original, complex phenomenon. In spite of serious difficulties, till now the process has remained under control. The government has reached in some…
Abstract
The Cuban dollarization is an original, complex phenomenon. In spite of serious difficulties, till now the process has remained under control. The government has reached in some degree its goal of rising foreign currency inflows, thus also of insuring economic recovery. Obviously, the dollarization’s effects have not been all positive, and the state recurrently recalls its wish to suppress it as soon as possible. This article explains to what extent the present dollarization is to be distinguished from the pre-revolutionary one; analyses its causes, mechanisms, and effects; and evaluates the debate about dollarization and scenarios of de-dollarization for Cuba.
The paper aims at developing a theoretical model for de facto dollarized small open economies focusing on currency substitution and nominal wages indexation to the exchange rate.
Abstract
Purpose
The paper aims at developing a theoretical model for de facto dollarized small open economies focusing on currency substitution and nominal wages indexation to the exchange rate.
Design/methodology/approach
The analysis is performed in a general equilibrium “New Open Economy Macroeconomics” framework with nominal rigidities and imperfect competition in the nontraded good sector.
Findings
The paper finds that a dollar‐indexed economy with low degrees of payments/financial dollarization could experience higher costs in terms of exchange rate and output fluctuations when nominal shocks dominate real shocks, making stabilization programs more difficult to achieve in a rapid and less costly way.
Practical implications
The speed of adjustment of macro variables is faster in the highly dollarized economy as a response to a higher and more volatile inflation rate. A higher level of financial dollarization increases the frequency of domestic prices and wages revisions to nominal exchange rate shocks. This might explain, in turn, why nominal disturbances are shorter lived in the higher dollarized economies, and the asymmetry between financial and real dollarization
Originality/value
Contrary to the “conventional wisdom” that predicts a positive relationship between the degrees of dollarization and the exchange rate pass‐through, our model shows that the degree of dollarization and the degree of dollar indexation are not necessarily the same or even correlated.
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This paper extends a recent study on financial dollarization of Broda and Levy Yeyati (2003) by introducing a lending of last resort intervention contingent both on banks’…
Abstract
This paper extends a recent study on financial dollarization of Broda and Levy Yeyati (2003) by introducing a lending of last resort intervention contingent both on banks’ portfolio currency composition and on banks’ monitoring effort. We show that when the lender of last resort commitment to intervene is matched with some operational discretion, according to a “constructive ambiguity” approach, then the provision of emergency liquidity may be crucial to enable distressed, but well-behaved banks, to survive and finance “high quality” investment projects.
It highlighted how the severe, three-year crisis has been deepened by “a failure to take much needed policy action” and “resistance from vested interests to reforms”. It also…
Details
DOI: 10.1108/OXAN-DB280185
ISSN: 2633-304X
Keywords
Geographic
Topical
Dollarisation in Africa.