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Is adopting Full Dollarization the solution? Looking at the evidence

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  • Ilan Goldfajn

    ()
    (Department of Economics PUC-Rio)

  • Gino Olivares

Abstract

The paper discusses the advantages and disadvantages of the full dollarization option and offers a few stylized facts and conclusions regarding the effects of full dollarization. On one hand, a full-dollarized economy delivers an impressive inflation performance and may even reduce the impact of external confidence shocks, although not external real shocks. On the other hand, full dollarization does not guarantee fiscal discipline neither the elimination of currency risk precludes default risk or the high volatility of sovereign spreads. In addition, it is not clear whether the reduction in domestic interest rates is the consequence of full dollarization or the competitive internationalized banking system.

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Bibliographic Info

Paper provided by Department of Economics PUC-Rio (Brazil) in its series Textos para discussão with number 416.

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Length: 23 pages
Date of creation: Feb 2000
Date of revision:
Handle: RePEc:rio:texdis:416

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  7. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  8. Tornell, Aaron & Velasco, Andres, 1995. "Fiscal discipline and the choice of exchange rate regime," European Economic Review, Elsevier, vol. 39(3-4), pages 759-770, April.
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  10. 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.
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Cited by:
  1. Jian-Ye Wang & Nisreen H. Farhan & Amar Shanghavi & Márcio Valério Ronci & Misa Takebe, 2008. "The Choice of Monetary and Exchange Rate Arrangements for a Small, Open, Low-Income Economy," IMF Working Papers 08/118, International Monetary Fund.
  2. Sebastian Edwards & I. Igal Magendzo, 2001. "Dollarization, Inflation and Growth," NBER Working Papers 8671, National Bureau of Economic Research, Inc.
  3. Alessandro Rebucci & Fabio Ghironi, 2002. "Monetary Rules for Emerging Market Economies," IMF Working Papers 02/34, International Monetary Fund.
  4. Craine, Roger, 2001. "Dollarization: An Irreversible Decision," Department of Economics, Working Paper Series qt404915zn, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  5. Canova, Fabio, 2003. "The Transmission of US Shocks to Latin America," CEPR Discussion Papers 3963, C.E.P.R. Discussion Papers.
  6. Araújo, Aloísio Pessoa de & Leon, Márcia Saraiva, 2002. "Speculative Attacks on Debts, Dollarization and Optimum Currency Areas," Economics Working Papers (Ensaios Economicos da EPGE) 446, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  7. Roberto Chang, 2000. "Dollarization: a scorecard," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 1-12.
  8. Sebastian Edwards & I. Igal Magendzo, 2002. "Dollarization and Economic Performance: What Do We Really Know?," Working Papers 65, Oesterreichische Nationalbank (Austrian Central Bank).
  9. Roger Craine, 2001. "Dollarization: An Irreversible Decision," International Finance 0103003, EconWPA.

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