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Dollarization, exchange rate regimes and government quality

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  • Honig, Adam

Abstract

The dollarization of the domestic banking system represents a source of vulnerability for emerging market countries, and a debate has emerged over whether the exchange rate regime has an impact on dollarization. This paper argues that the regime is far less important than the literature has previously claimed. Unofficial dollarization results from a lack of faith in the domestic currency, which ultimately stems from the belief that the government will not follow policies that promote long-run currency stability. Empirical results indicate that improved government quality reduces unofficial dollarization, while the exchange rate regime plays no direct role in promoting dollarization.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 28 (2009)
Issue (Month): 2 (March)
Pages: 198-214

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Handle: RePEc:eee:jimfin:v:28:y:2009:i:2:p:198-214

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Web page: http://www.elsevier.com/locate/inca/30443

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Keywords: Unofficial dollarization Exchange rate regimes Government quality;

References

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Citations

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Cited by:
  1. Calderón, César & Kubota, Megumi, 2013. "Sudden stops: Are global and local investors alike?," Journal of International Economics, Elsevier, vol. 89(1), pages 122-142.
  2. Aysun, Uluc & Honig, Adam, 2011. "Bankruptcy costs, liability dollarization, and vulnerability to sudden stops," Journal of Development Economics, Elsevier, vol. 95(2), pages 201-211, July.
  3. Guillermo A. Calvo & Frederic S. Mishkin, 2003. "The Mirage of Exchange Rate Regimes for Emerging Market Countries," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 99-118, Fall.
  4. Kyriakos C. Neanidis & Christos S. Savva, 2013. "Institutions and Financial Dollarization: Indirect Effects based on a Policy Experiment," Centre for Growth and Business Cycle Research Discussion Paper Series 187, Economics, The Univeristy of Manchester.
  5. Bruce N. Lehmann & David M. Modest, 1985. "The Empirical Foundations of the Arbitrage Pricing Theory I: The Empirical Tests," NBER Working Papers 1725, National Bureau of Economic Research, Inc.
  6. Lula G. Mengesha & Mark J. Holmes, 2013. "Does Dollarization Alleviate Or Aggravate Exchange Rate Volatility?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, Chung-Ang Unviersity, Department of Economics, vol. 38(2), pages 99-118, June.
  7. Kyriakos C. Neanidis, 2010. "Financial Dollarization and European Union Membership," CESifo Working Paper Series 3101, CESifo Group Munich.
  8. Claude Bismut & Darine Ghanem, 2009. "This paper investigates empirically the reasons behind the popularity of fixed adjustable pegs in the Middle East North Africa region (MENA). We have used an ordered multinomial random effects probit ," Working Papers, LAMETA, Universtiy of Montpellier 09-10, LAMETA, Universtiy of Montpellier, revised Sep 2009.
  9. Adamcik, Santiago, 2008. "Sobre la Elección de Regímenes de Tipo de Cambio en Economías Emergentes
    [On Choosing an Exchange Rate Regimes in Emerging Economies]
    ," MPRA Paper 9329, University Library of Munich, Germany.
  10. Chen, Xiaofen, 2012. "The dampening effect of bank foreign liabilities on monetary policy: Revisiting monetary cooperation in East Asia," Journal of International Money and Finance, Elsevier, Elsevier, vol. 31(2), pages 412-427.
  11. Vieira, Fabrício A.C. & Holland, Márcio & Resende, Marco F., 2012. "Financial dollarization and systemic risks: New empirical evidence," Journal of International Money and Finance, Elsevier, Elsevier, vol. 31(6), pages 1695-1714.
  12. Pierre-Olivier Gourinchas & Maurice Obstfeld, 2012. "Stories of the Twentieth Century for the Twenty-First," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 226-65, January.
  13. Kutan, Ali & Ozsoz, Emre & Rengifo, Erick, 2012. "Dynamics of Foreign Currency Lending in Turkey," MPRA Paper 36214, University Library of Munich, Germany.
  14. Erick W. Rengifo & Emre Ozsoz & Mustapha A. Akinkunmi & Eduardo Court, 2013. "Bank Regulation in Dollarized Economies: The Case of Turkey," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 1(4), pages 137-153, November.

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