This paper investigates effects of official dollarization on the macroeconomic performance of Ecuador using a time series perspective. More specifically, we investigate how dollarization effects inflation, GDP, inflation uncertainty and money-price relationship in Ecuador. There are four main findings of this study. First, inflation is lower after official dollarization. Second, GDP growth is higher after official dollarization when controlling for several other factors like rising oil prices and increase in the equity markets of emerging economies. Third, inflation uncertainty measured by inflation variance through GARCH is lower during official dollarization. Finally, money supply is endogenous after official dollarization and exogenous before official dollarization. As a result, we conclude that dollarization improved the macroeconomic performance of Ecuador and changed the money-price relationship in Ecuador.
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Paper provided by Turkish Economic Association in its series Working Papers with number
2009/4.
Find related papers by JEL classification: F31 - International Economics - - International Finance - - - Foreign Exchange E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation