IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/8671.html
   My bibliography  Save this paper

Dollarization, Inflation and Growth

Author

Listed:
  • Sebastian Edwards
  • I. Igal Magendzo

Abstract

In this paper we analyze the macroeconomic record of dollarized economies. In particular, we investigating whether, as its supporters' claim, dollarization is associated with lower inflation and faster growth. We analyze this issue by using a matching estimator technique developed in the training evaluation literature. Our findings suggest that inflation has been significantly lower in dollarized nations than in non-dollarized ones. We also find that dollarized nations have had a lower rate of economic growth than non-dollarized ones. Finally, we find that macroeconomic volatility is not significantly different across dollarized and non-dollarized economies. We conjecture that the lower rate of economic growth in dollarized countries is due, at least in part, to these countries' difficulties in accommodating external disturbances, such as major term of trade and capital flows shocks.

Suggested Citation

  • Sebastian Edwards & I. Igal Magendzo, 2001. "Dollarization, Inflation and Growth," NBER Working Papers 8671, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8671
    Note: IFM ME
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w8671.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-1025, July.
    2. Andrew K. Rose, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," NBER Working Papers 7432, National Bureau of Economic Research, Inc.
    3. Rudi Dornbusch, 2001. "Fewer Monies, Better Monies," American Economic Review, American Economic Association, vol. 91(2), pages 238-242, May.
    4. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
    5. Richard Blundell & Alan Duncan & Costas Meghir, 1998. "Estimating Labor Supply Responses Using Tax Reforms," Econometrica, Econometric Society, vol. 66(4), pages 827-862, July.
    6. Guillermo A. Calvo, 2001. "Capital markets and the exchange rate with special reference to the dollarization debate in Latin America," Proceedings, Federal Reserve Bank of Cleveland, pages 312-338.
    7. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
    8. Edwards, Sebastian, 2001. "Dollarization: Myths and realities," Journal of Policy Modeling, Elsevier, vol. 23(3), pages 249-265, April.
    9. Richard Blundell & Monica Costa Dias, 2000. "Evaluation methods for non-experimental data," Fiscal Studies, Institute for Fiscal Studies, vol. 21(4), pages 427-468, January.
    10. Zeljko Bogetic, 2005. "Official Dollarization: Current Experiences and Issues, Cato Journal, Vol. 20, No. 2 (Fall 2000), 179-213," International Finance 0510006, University Library of Munich, Germany.
    11. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 329-368.
    12. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May.
    13. Ilan Goldfajn & Gino Olivares, 2000. "Is adopting Full Dollarization the solution? Looking at the evidence," Textos para discussão 416, Department of Economics PUC-Rio (Brazil).
    14. repec:cto:journl:v:20:y:2000:i:2:p:179-213 is not listed on IDEAS
    15. Corbo, Vittorio, 2001. "Is it time for a common currency for the Americas?," Journal of Policy Modeling, Elsevier, vol. 23(3), pages 241-248, April.
    16. Eichengreen, Barry, 2001. "What problems can dollarization solve?," Journal of Policy Modeling, Elsevier, vol. 23(3), pages 267-277, April.
    17. Torsten Persson, 2001. "Currency unions and trade: how large is the treatment effect?," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 16(33), pages 434-448.
    18. Alberto Alesina & Robert J. Barro, 2001. "Dollarization," American Economic Review, American Economic Association, vol. 91(2), pages 381-385, May.
    19. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 15(30), pages 08-45.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. It's the borrowing costs not the flip-flop
      by Brian Ashcroft in Scottish Economy Watch on 2012-10-06 03:52:55

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alexis Cruz-Rodriguez, 2013. "Choosing and Assessing Exchange Rate Regimes: a Survey of the Literature," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 28(2), pages 37-61, October.
    2. Roberto Duncan, 2003. "Exploring the Implications of Official Dollarization on Macroeconomic Volatility," Working Papers Central Bank of Chile 200, Central Bank of Chile.
    3. Fujiki, Hiroshi & Otani, Akira, 2002. "Do Currency Regimes Matter in the 21st Century? An Overview," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(S1), pages 47-79, December.
    4. Edwards, Sebastian, 2002. "The great exchange rate debate after Argentina," The North American Journal of Economics and Finance, Elsevier, vol. 13(3), pages 237-252, December.
    5. Eduardo Levy Yeyati, 2006. "Exchange Rate Regimes in the 2000s: A Latin American Perspective," Business School Working Papers exchangerate, Universidad Torcuato Di Tella.
    6. G.M. Wessels, 2004. "The Suitability Of Dollarisation As An Exchange Rate Regime For South Africa1," South African Journal of Economics, Economic Society of South Africa, vol. 72(2), pages 324-348, June.
    7. Roberto Duncan, 2003. "Floating, Official Dollarization, and Macroeconomic Volatility:An Analysis for the Chilean Economy," Working Papers Central Bank of Chile 249, Central Bank of Chile.
    8. Fabien Candau & Michaël Goujon & Jean-François Hoarau & Serge Rey, 2014. "Real exchange rate and competitiveness of an EU's ultra-peripheral region: La Reunion Island," International Economics, CEPII research center, issue 137, pages 1-21.
    9. John Hawkins & Paul Masson, 2003. "Economic aspects of regional currency areas and the use of foreign currencies," BIS Papers chapters, in: Bank for International Settlements (ed.), Regional currency areas and the use of foreign currencies, volume 17, pages 4-42, Bank for International Settlements.
    10. Patrick Imam, 2012. "Exchange Rate Choices of Microstates," The Developing Economies, Institute of Developing Economies, vol. 50(3), pages 207-235, September.
    11. Mr. David William Harold Orsmond & Mr. Christopher Browne, 2006. "Pacific Island Countries: Possible Common Currency Arrangement," IMF Working Papers 2006/234, International Monetary Fund.
    12. Guillermo A. Calvo & Frederic S. Mishkin, 2003. "The Mirage of Exchange Rate Regimes for Emerging Market Countries," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 99-118, Fall.
    13. Felipe Larraín & Francisco Parro, 2003. "¿Importa la Opción de Régimen Cambiario? Evidencia para Países en Desarrollo," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(121), pages 635-645.
    14. Milena Lipovina-Božoviæ & Maja Ivanoviæ, 2018. "Capital flows in Montenegro: SVAR model," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(2), pages 647-675.
    15. René Cabral-Torres, "undated". "Assessing the Impact of Real Shocks on Small Dollarized Economies," Discussion Papers 05/27, Department of Economics, University of York.
    16. Edwards, Sebastian, 2002. "The great exchange rate debate after Argentina," The North American Journal of Economics and Finance, Elsevier, vol. 13(3), pages 237-252, December.
    17. Patrick A. Imam, 2009. "Introducing the Euro as Legal Tender—Benefits and Costs of Eurorization for Cape Verde," IMF Working Papers 2009/146, International Monetary Fund.
    18. Cabral, René, 2010. "Why dollarization didn't succeed: Comparing credibility and the impact of real shocks on small open economies," The North American Journal of Economics and Finance, Elsevier, vol. 21(3), pages 297-313, December.
    19. Stanisic, Nenad, 2012. "Effects of international monetary integration on inflation, economic growth and current account," MPRA Paper 38938, University Library of Munich, Germany.
    20. Chih Ming Tan & Dhanushka Thamarapani, 2019. "The impact of sustained attention on labor market outcomes: The case of Ghana," Review of Development Economics, Wiley Blackwell, vol. 23(1), pages 155-171, February.
    21. Rolando H. Castañeda, 2002. "Lecciones de la Experiencia deReformas y de la Crisis Argentina para la Transición Cubana: Importancia del Proyecto Varela," Annual Proceedings, The Association for the Study of the Cuban Economy, vol. 12.
    22. Sebastian Edwards & Igal Magendzo, 2003. "A Currency of One's Own? An Empirical Investigation on Dollarization and Independent Currency Unions," NBER Working Papers 9514, National Bureau of Economic Research, Inc.
    23. repec:onb:oenbwp:y::i:74:b:1 is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sebastian Edwards & I. Igal Magendzo, 2003. "Dollarization and economic performance: What do we really know?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(4), pages 351-363.
    2. Sebastian Edwards & I. Igal Magendzo, 2003. "Dollarization and economic performance: What do we really know?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(4), pages 351-363.
    3. repec:onb:oenbwp:y::i:65:b:1 is not listed on IDEAS
    4. Sebastian Edwards & Igal Magendzo, 2003. "A Currency of One's Own? An Empirical Investigation on Dollarization and Independent Currency Unions," NBER Working Papers 9514, National Bureau of Economic Research, Inc.
    5. Fujiki, Hiroshi & Otani, Akira, 2002. "Do Currency Regimes Matter in the 21st Century? An Overview," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(S1), pages 47-79, December.
    6. Sebastian Edwards, 2011. "Exchange-Rate Policies in Emerging Countries: Eleven Empirical Regularities From Latin America and East Asia," Open Economies Review, Springer, vol. 22(4), pages 533-563, September.
    7. Edwards, Sebastian & Levy Yeyati, Eduardo, 2005. "Flexible exchange rates as shock absorbers," European Economic Review, Elsevier, vol. 49(8), pages 2079-2105, November.
    8. Betts, Caroline & Devereux, Michael B, 2000. "International Monetary Policy Coordination and Competitive Depreciation: A Reevaluation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 722-745, November.
    9. Assaf Razin & Yona Rubinstein, 2005. "Evaluation of Exchange-Rate, Capital Market, and Dollarization Regimes in the Presence of Sudden Stops," NBER Working Papers 11131, National Bureau of Economic Research, Inc.
    10. Sebastian Edwards, 2011. "Exchange Rates in Emerging Countries: Eleven Empirical Regularities from Latin America and East Asia," NBER Working Papers 17074, National Bureau of Economic Research, Inc.
    11. Levy Yeyati, Eduardo & Sturzenegger, Federico & Reggio, Iliana, 2010. "On the endogeneity of exchange rate regimes," European Economic Review, Elsevier, vol. 54(5), pages 659-677, July.
    12. Rodrigo Caputo G. & Igal Magendzo, 2009. "Do Exchange Rate Regimes Matter For Inflation And Exchange Rate Dynamics? The Case Of Central America," Working Papers Central Bank of Chile 517, Central Bank of Chile.
    13. Metin-Özcan, Kıvılcım & Us, Vuslat, 2007. "Dedollarization in Turkey after decades of dollarization: A myth or reality?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 385(1), pages 292-306.
    14. Edwards, Sebastian, 2002. "The great exchange rate debate after Argentina," The North American Journal of Economics and Finance, Elsevier, vol. 13(3), pages 237-252, December.
    15. Alexis Cruz-Rodriguez, 2013. "Choosing and Assessing Exchange Rate Regimes: a Survey of the Literature," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 28(2), pages 37-61, October.
    16. Michael Artis, 2008. "What do we now know about currency unions?," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 1(1), pages 13-29.
    17. Jeffrey A. Frankel & Shang-Jin Wei, 2004. "Managing Macroeconomic Crises," NBER Working Papers 10907, National Bureau of Economic Research, Inc.
    18. Zsolt Darvas & György Szapáry, 2008. "Business Cycle Synchronization in the Enlarged EU," Open Economies Review, Springer, vol. 19(1), pages 1-19, February.
    19. Assaf Razin & Yona Rubinstein, 2006. "Evaluation of currency regimes: the unique role of sudden stops [‘Gravity with gravitas: A solution to the border puzzle’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 21(45), pages 120-152.
    20. Michele Fratianni, 2004. "Borders and the Constraints on Globalization," Working Papers 2004-05, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    21. A. Bénassy-Quéré & B. Cœuré, 2002. "The Survival of Intermediate Exchange rate Regimes," THEMA Working Papers 2002-11, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:8671. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.