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Financial Dollarization and Currency Substitution. An Empirical Study for Bolivia America than in Asia?

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  • Salvatore Dell'Erba
  • Martin Saldías Zambrana

Abstract

The Bolivian puzzle is high and persistent financial dollarization notwithstanding deep macroeconomic stabilization that achieved stable and low inflation and the regulations encouraging domestic currency deposits. We analyze traditional and new approaches to explain dollarization in Bolivia. We first assess the currency substitution approach and then assess the empirical evidence for the financial dollarization approach. The results show that the macroeconomic variables capture only partially the phenomenon and a better assessment relies on other explanations such as the peso problem and the analysis of specific characteristics of the financial markets in Bolivia.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Advanced Studies Working Papers with number 432.

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Length: 32 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:kie:kieasw:432

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Keywords: Dollarization; Exchange rate regimes; Inflation; Bolivia;

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References

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  1. Adam Bennett & Eduardo Borensztein & Tomás J. T. Baliño, 1999. "Monetary Policy in Dollarized Economies," IMF Occasional Papers 171, International Monetary Fund.
  2. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, October.
  3. Eduardo Levy Yeyati, 2005. "Financial Dollarisation: Evaluating The Consequences," Business School Working Papers findollarisation, Universidad Torcuato Di Tella.
  4. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  5. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  6. Eduardo Moron & Juan F. Castro, 2003. "Dedollarizing the Peruvian Economy," Macroeconomics 0312005, EconWPA.
  7. Juan Castro & Eduardo Morón, 2005. "Financial Dollarization and the Size of the Fear," Working Papers 05-03, Departamento de Economía, Universidad del Pacífico, revised Jul 2005.
  8. Pablo Guidotti & Carlos A. Rodríguez, 1992. "Dollarization in Latin America: Gresham's Law in Reverse?," CEMA Working Papers: Serie Documentos de Trabajo. 81, Universidad del CEMA.
  9. Ize, Alain & Yeyati, Eduardo Levy, 2003. "Financial dollarization," Journal of International Economics, Elsevier, vol. 59(2), pages 323-347, March.
  10. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  11. Eduardo Levy Yeyati & Alain Ize, 1998. "Dollarization of Financial Intermediation," IMF Working Papers 98/28, International Monetary Fund.
  12. Melvin, Michael & Ladman, Jerry, 1991. "Coca Dollars and the Dollarization of South America," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(4), pages 752-63, November.
  13. Guillermo Calvo & Carlos A. Végh Gramont, 1992. "Currency Substitution in Developing Countries," IMF Working Papers 92/40, International Monetary Fund.
  14. Calvo, Guillermo & Vegh, Carlos, 1992. "Currency Substitution in Developing Countries: An Introduction," MPRA Paper 20338, University Library of Munich, Germany.
  15. Adolfo Barajas & Armando Méndez Morales, 2003. "Dollarization of Liabilities," IMF Working Papers 03/11, International Monetary Fund.
  16. Juan Antonio Morales Anaya, 2003. "Dollarization of assets and liabilities: Problem or solution?. The case of Bolivia," Revista de Análisis del BCB, Banco Central de Bolivia, vol. 6(1), pages 7-39, June.
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