Dollarization in Latin America: Gresham's Law in Reverse?
AbstractSince the 1970s, a number of high-inflation Latin American countries have experienced persistent "dollarization." To interpret some of the stylized facts, a simple model is presented in which dollarization reflects the costs that are involved in switching the currency denomination of transactions. The transaction costs of dollarization define a band for the inflation differential within which there will be no incentive to switch between currencies. Above the upper value of the band, the local currency gradually disappears as the economy becomes fully dollarized; below the lower value, de-dollarization occurs.
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Bibliographic InfoPaper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number 81.
Date of creation: Feb 1992
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Other versions of this item:
- Pablo E. Guidotti & Carlos A. Rodriguez, 1992. "Dollarization in Latin America: Gresham's Law in Reverse?," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 518-544, September.
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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