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Exchange Rate Regimes and Financial Dollarization: Does Flexibility Reduce Currency Mismatches in Bank Intermediation?

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Author Info
Carlos Arteta (Board of Governors of the Federal Reserve System)

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Abstract

The dollarization of bank deposits and credit is widespread in developing countries, resulting in varying degrees of currency mismatches in domestic financial intermediation. It is argued that flexible exchange rate regimes generally encourage banks to match dollar-denominated liabilities with a corresponding amount of dollar-denominated assets. Does this argument apply to the behavior of dollar deposits and credits in financially dollarized economies? A new database on deposit and credit dollarization in developing and transition countries is assembled and used to address this question. Empirical results suggest that, if anything, floating regimes are positively associated with deposit dollarization more strongly than they are associated with credit dollarization. As a consequence, currency mismatches in domestic financial intermediation seem to be greater under floating regimes.

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File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=1226&context=bejm
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Publisher Info
Article provided by Berkeley Electronic Press in its journal Topics in Macroeconomics.

Volume (Year): 5 (2005)
Issue (Month): 1 ()
Pages: 1226-1226
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Handle: RePEc:bep:mactop:v:5:y:2005:i:1:p:1226-1226

Note: oai:bepress:bejm-1226
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Related research
Keywords: dollarization exchange rate regimes currency mismatches banks

Find related papers by JEL classification:
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

References listed on IDEAS
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. Demirguc-Kunt, Asli & Detragiache, Enrica, 2002. "Does deposit insurance increase banking system stability? An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1373-1406, October. [Downloadable!] (restricted)
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  2. Eduardo Borensztein & Andrew Berg, 2000. "The Choice of Exchange Rate Regime and Monetary Target in Highly Dollarized Economies," IMF Working Papers 00/29, International Monetary Fund.
    Other versions:
  3. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does The Nominal Exchange Rate Regime Matter?," Working Papers 97-09, New York University, Leonard N. Stern School of Business, Department of Economics.
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  4. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange Rates and Financial Fragility," NBER Working Papers 7418, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Carlos Arteta, 2006. "Exchange Rate Regimes and Financial Dollarization: Does Flexibility Reduce Bank Currency Mismatches?," Center for International and Development Economics Research, Working Paper Series 1021, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
  6. Hélène Poirson, . "How Do Countries Choose Their Exchange Rate Regime?," IMF Working Papers 01/46, International Monetary Fund. [Downloadable!]
  7. Adam Bennett & Eduardo Borensztein & Tomás J. T. Baliño, 1999. "Monetary Policy in Dollarized Economies," IMF Occasional Papers 171, International Monetary Fund.
  8. Maurice Obstfeld, 2006. "The Global Capital Market: Benefactor or Menace?," Center for International and Development Economics Research, Working Paper Series 1026, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
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  9. Carlos O. Arteta, 2002. "Exchange rate regimes and financial dollarization: does flexibility reduce bank currency mismatches?," International Finance Discussion Papers 738, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  10. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 2001. "Hedging and financial fragility in fixed exchange rate regimes," European Economic Review, Elsevier, vol. 45(7), pages 1151-1193. [Downloadable!] (restricted)
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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. Edmar L. Bacha & Márcio Holland & Fernando M. Gonçalves, 2007. "Is Brazil Different? Risk, Dollarization, And Interest In Emerging Markets," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 028, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  2. Fernando M. Gonçalves & Edmar L. Bacha & Márcio Holland, 2008. "Is Brazil Different? Risk, Dollarization, and Interest Rates in Emerging Markets," IMF Working Papers 07/294, International Monetary Fund. [Downloadable!]
  3. Uluc Aysun & Adam Honig, 2008. "Bankruptcy Costs, Liability Dollarization, and Vulnerability to Sudden Stops," Working papers 2008-41, University of Connecticut, Department of Economics. [Downloadable!]
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