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Dedollarizing the Peruvian Economy

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Author Info

  • Eduardo Moron

    (Universidad del Pacifico)

  • Juan F. Castro

    (Universidad del Pacifico)

Abstract

Financial dollarization creates design problems for economic policy as increases the level of financial vulnerability. However, countries with high levels of dollarization have done almost nothing to reduce it. In this paper we study two ways to do it and we evaluate them within a model that emphasizes a portfolio approach. We calibrate the model to replicate the Peruvian economy. The two policy options that we consider are: (i) increasing the risk of dollar deposits, reducing the level of coverage in the safety net mechanism; (ii) increasing the relative volatility of inflation vis-à-vis real depreciation. Our results show that the former has the potential risk of lowering the level of financial intermediation, whereas the second might be more effective to de-dollarize the economy.

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File URL: http://128.118.178.162/eps/mac/papers/0312/0312005.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0312005.

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Date of creation: 12 Dec 2003
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Handle: RePEc:wpa:wuwpma:0312005

Note: Type of Document - PDF; prepared on Win98; to print on Laser;
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Web page: http://128.118.178.162

Related research

Keywords: Liability dollarization; dedollarization; Peru;

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References

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  1. Moron, Eduardo & Winkelried, Diego, 2005. "Monetary policy rules for financially vulnerable economies," Journal of Development Economics, Elsevier, vol. 76(1), pages 23-51, February.
  2. Eduardo Levy Yeyati, 2003. "Financial Dedollarization: A Carrot and Stick Approach," Business School Working Papers nueve, Universidad Torcuato Di Tella.
  3. Gerardo Licandro & José Antonio Licandro, 2003. "Building the Dedollarization Agenda: Lessons from the Uruguayan Case," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 193-218, July-Dece.
  4. Ize, Alain & Yeyati, Eduardo Levy, 2003. "Financial dollarization," Journal of International Economics, Elsevier, vol. 59(2), pages 323-347, March.
  5. Broda, Christian & Yeyati, Eduardo Levy, 2006. "Endogenous Deposit Dollarization," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 963-988, June.
  6. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  7. De Nicolo, Gianni & Honohan, Patrick & Ize, Alain, 2003. "Dollarization of the banking system : good or bad?," Policy Research Working Paper Series 3116, The World Bank.
  8. Eduardo Levy Yeyati & Alain Ize, 1998. "Dollarization of Financial Intermediation," IMF Working Papers 98/28, International Monetary Fund.
  9. Gianni De Nicoló & Patrick Honohan & Alain Ize, 2003. "Dollarization of the Banking System," IMF Working Papers 03/146, International Monetary Fund.
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Citations

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Cited by:
  1. Andres Velasco & Robert Chang, 2004. "Endogenous dollarization, expectations, and equilibrium monetary policy," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  2. Diego Winkelried & Juan Francisco Castro & Eduardo Morón, 2004. "Understanding Financial Vulnerability in Partially Dollarized Economies," Econometric Society 2004 Latin American Meetings 260, Econometric Society.
  3. Eduardo Moron & Juan F. Castro & Diego Winkelried, 2004. "Assessing Financial Vulnerability in Partially Dollarized Economies," International Finance 0406002, EconWPA.
  4. Salvatore Dell'Erba & Martin Saldías Zambrana, 2006. "Financial Dollarization and Currency Substitution. An Empirical Study for Bolivia America than in Asia?," Kiel Advanced Studies Working Papers 432, Kiel Institute for the World Economy.
  5. Roberto Chang & Andres Velasco, 2004. "Monetary policy and the currency denomination of debt: a tale of two equilibria," Working Paper Series 2004-30, Federal Reserve Bank of San Francisco.

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