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Financial Dollarization: Efficient Intranational Risk Sharing or Prescription for Disaster?

Author

Listed:
  • Lawrence Christiano
  • Hüsnü Dalgic
  • Armen Nurbekyan

Abstract

A large literature focuses on the implications of the dollar for international risk sharing. In contrast, we find evidence that most of the risk sharing associated with the dollar is intranational rather than international. It is sometimes suggested that the insurance benefits of the dollar are undone by an increased risk of financial fragility. We display empirical evidence that this concern is over-stated. We develop a simple model formalizing our findings about the insurance role of the dollar, which is consistent with the key cross-country facts on interest rate differentials, deposit dollarization and exchange rate depreciations in recessions.

Suggested Citation

  • Lawrence Christiano & Hüsnü Dalgic & Armen Nurbekyan, 2021. "Financial Dollarization: Efficient Intranational Risk Sharing or Prescription for Disaster?," NBER Working Papers 29034, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29034
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    Cited by:

    1. Benigno, Pierpaolo & Schilling, Linda M. & Uhlig, Harald, 2022. "Cryptocurrencies, currency competition, and the impossible trinity," Journal of International Economics, Elsevier, vol. 136(C).

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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