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Dollarization hysteresis and network externalities: theory and evidence from an informal Bolivian credit market

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  • Bettina Peiers
  • Jeffrey M. Wrase

Abstract

This paper considers network externalities from currency acceptability as a determinant of observed persistence of dollarization in Latin American countries. A model with efficiencies from establishing a network of currency users is constructed. Model implications are then tested using a unique data set of daily loan records from an informal Bolivian credit market. Empirical results are consistent with dollarization hysteresis being driven by network externalities from currency adoption. The results also imply that credible exchange rate stabilization policy alone is not sufficient to achieve dollarization reversal.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 97-21.

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Date of creation: 1997
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Handle: RePEc:fip:fedpwp:97-21

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Keywords: Bolivia ; Latin America ; Dollar; American;

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Cited by:
  1. John Duffy & Maxim Nikitin, 2004. "Dollarization Traps," Econometric Society 2004 Latin American Meetings 196, Econometric Society.
  2. Nienke Oomes, 2003. "Network Externalities and Dollarization Hysteresis," IMF Working Papers 03/96, International Monetary Fund.
  3. Carlos Montoro & Eduardo Moreno, 2007. "Regla fiscal estructural y el ciclo del producto," Monetaria, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 107-132, marzo-abr.
  4. Henrik Müller, 1999. "From dollarisation to euroisation," Intereconomics: Review of European Economic Policy, Springer, vol. 34(6), pages 286-296, November.
  5. Bernardo X. Fernández Tellería, 2006. "Dollarization hysteresis network externalities and the "Past legacy" effect: The case of Bolivia," Revista de Análisis del BCB, Banco Central de Bolivia, vol. 9(1), pages 7-64, December.
  6. Henry Vargas Campos & Jacqueline Zamora Bolaños, 2007. "Proyección de inflación en una economía pequeña y abierta usando modelos de estado espacio con cambio de régimen: caso de Costa Rica," Monetaria, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 133-166, marzo-abr.
  7. Machicado, Carlos Gustavo, 2008. "Liquidity shocks and the dollarization of a banking system," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 369-381, March.
  8. Kamin, Steven B. & Ericsson, Neil R., 2003. "Dollarization in post-hyperinflationary Argentina," Journal of International Money and Finance, Elsevier, vol. 22(2), pages 185-211, April.

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