Addressing private sector currency mismatches in emerging Europe
AbstractThis paper provides a survey of the theoretical and empirical literature on the dollarisation of corporate and household liabilities; presents evidence on the causes of FX lending specifically in transition economies; and proposes a set of criteria to help decide on the right policy response based on country characteristics. These criteria particularly affect the extent to which regulation should be part of the policy response. Regulation to contain FX mismatches is useful in relatively advanced countries in which small market size and/or proximity to the euro make it difficult to fully develop local currency capital markets. In contrast, regulatory responses could be counterproductive in less advanced countries with high macroeconomic volatility. In these countries, the route to de-dollarisation first and foremost requires the strengthening of macroeconomic institutions.
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Bibliographic InfoPaper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 115.
Length: 36 pages
Date of creation: Jun 2010
Date of revision:
Publication status: Forthcoming in "Financial Market Regulation and Reforms in Emerging Markets", Masahiro Kawai and Eswar Prasad, eds., Brookings Institution Press 2010.
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Find related papers by JEL classification:
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
- P2 - Economic Systems - - Socialist Systems and Transition Economies
- P5 - Economic Systems - - Comparative Economic Systems
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-05 (All new papers)
- NEP-EEC-2011-02-05 (European Economics)
- NEP-IFN-2011-02-05 (International Finance)
- NEP-TRA-2011-02-05 (Transition Economics)
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