We investigate the case for official dollarization in a selection of Latin American countries. We argue that the monetary shock absorbers of base control, foreign exchange reserve sterilization and exchange rate policy should be retained the more volatile is a country's actual real exchange rate. Our investigation of the asymmetry of macroeconomic shocks between the USA and Latin America suggests that the time series property of the real exchange rate is likely to be one of such volatility that it is advisable to retain at least some monetary shock absorbers. The case for official dollarization is further weakened by the unlikelihood of international agreements to accommodate Federal Reserve management of the dollar base to Latin American requirements.
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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number
2001-06.
Length: 24 pages Date of creation: Aug 2001 Date of revision: Handle: RePEc:uct:uconnp:2001-06
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Find related papers by JEL classification: E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit F3 - International Economics - - International Finance
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