Dollarization as an Investment Signal in Developing Countries: The Case of Croatia, Czech Republic, Peru, Slovak Republic and Turkey
AbstractIn dollarized financial systems, there exists a currency mismatch risk that could lead to financial crises. Central Banks in such economies have to adjust their foreign currency policies accordingly. This paper estimates the probability of Central Bankers' intervention in the foreign currency markets in dollarized economies as explained by the volatility measures of the local exchange rate. By employing data from five countries, we show that in controlled inflation environments, not only Central Banks' interventions but also the direction of the interventions can be predicted to a good degree while under high inflation our model fails to provide healthy results.
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Bibliographic InfoPaper provided by Fordham University, Department of Economics in its series Fordham Economics Discussion Paper Series with number dp2008-16.
Date of creation: 2008
Date of revision:
Central Bank Intervention; Foreign Exchange Rates; Dollarization; Ordered Probit;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-07 (All new papers)
- NEP-CWA-2008-10-07 (Central & Western Asia)
- NEP-IFN-2008-10-07 (International Finance)
- NEP-MAC-2008-10-07 (Macroeconomics)
- NEP-MON-2008-10-07 (Monetary Economics)
- NEP-TRA-2008-10-07 (Transition Economics)
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