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Dollarization Persistence and Individual Heterogeneity

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  • Paul Castillo

    ()
    (London School of Economics, Central Bank of Peru)

  • Diego Winkelried

    ()
    (St John’s College, University of Cambridge)

Abstract

The most salient feature of financial dollarization, and the one that causes more concern to policy makers, is its persistence: even after successful macroeconomic stabilizations, dollarization ratios often remain high. In this paper we claim that this persistence is connected to the fact that the participants in the dollar deposit market are fairly heterogenous, and so is the way they form their optimal currency portfolio.We develop as simple model when agents differ in their ability to process information, which turns out to be enough to generate persistence up on aggregation. We find empirical support for this claim with data from three Latin American countries and Poland.

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Bibliographic Info

Paper provided by Banco Central de Reserva del Perú in its series Working Papers with number 2007-004.

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Date of creation: Mar 2007
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Handle: RePEc:rbp:wpaper:2007-004

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Keywords: Dollarization; individual heterogeneity; persistence; aggregation;

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References

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Citations

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Cited by:
  1. Carlos Eduardo León Rincón & Alejandro Reveiz, . "La dolarización financiera: Experiencia internacional y perspectivas para Colombia," Borradores de Economia 482, Banco de la Republica de Colombia.
  2. Martin Brown & Ralph De Haas & Vladimir Sokolov, 2013. "Regional inflation and financial dollarisation," Working Papers 163, European Bank for Reconstruction and Development, Office of the Chief Economist.
  3. Sanchez Alan, 2006. "Financial Dollarization, the portfolio approach and expectations: evidence for Latin America (1995-2005)," Working Papers 2006-010, Banco Central de Reserva del Perú.
  4. Winkelried, Diego, 2013. "Modelo de Proyección Trimestral del BCRP: Actualización y novedades," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 26, pages 9-60.
  5. Rossini, Renzo & Quispe, Zenón & Rodríguez, Donita, 2013. "Flujo de capitales, política monetaria e intervención cambiaria en el Perú," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 25, pages 39-50.
  6. Paul Castillo & Alberto Humala & Vicente Tuesta, 2007. "Monetary Policy, Regime Shifts, and Inflation Uncertainty in Peru (1949-2006)," Working Papers 2007-005, Banco Central de Reserva del Perú.

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