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Is there a link between dollarization and banking crises?

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  • Adam Honig

    (Department of Economics, Amherst College, USA)

Abstract

I estimate a multivariate probit model to identify key variables that are predictive of banking crises. To add to the literature on this subject, I focus on the role played by unofficial dollarization of domestic banking systems. Unofficial dollarization is a source of vulnerability for emerging markets as large depreciations render both domestic firms and banks unable to pay dollar-denominated debt. Surprisingly, I find only weak evidence that unofficial dollarization affects the probability of a banking crisis. This finding casts doubt on the widely held belief that liability dollarization is a significant source of risk for emerging markets and developing nations, although there are still reasons to believe that dollarization remains a significant source of risk. Copyright © 2006 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

Volume (Year): 18 (2006)
Issue (Month): 8 ()
Pages: 1123-1135

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Handle: RePEc:wly:jintdv:v:18:y:2006:i:8:p:1123-1135

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Web page: http://www3.interscience.wiley.com/journal/5102/home

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Cited by:
  1. Lenno Uusküla & Peeter Luikmel & Jana Kask, 2005. "Critical Levels of Debt?," Bank of Estonia Working Papers, Bank of Estonia 2005-3, Bank of Estonia, revised 10 Oct 2005.
  2. Joseph Joyce, 2011. "Financial Globalization and Banking Crises in Emerging Markets," Open Economies Review, Springer, Springer, vol. 22(5), pages 875-895, November.

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