Dollarization Persistence and Individual Heterogeneity
AbstractThe most salient feature of financial dollarization, and the one that causes more concern to policymakers, 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 a simple model when agents differ in their ability to process information, which turns out to be enough to generate persistence upon aggregation. We find empirical support for this claim with data from three Latin American countries and Poland.
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Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 0512014.
Length: 25 pages
Date of creation: 21 Dec 2005
Date of revision: 31 Dec 2005
Note: Type of Document - pdf; pages: 25
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Dollarization; individual heterogeneity; persistence; aggregation;
Other versions of this item:
- Winkelried, Diego & Castillo, Paul, 2010. "Dollarization persistence and individual heterogeneity," Journal of International Money and Finance, Elsevier, vol. 29(8), pages 1596-1618, December.
- Paul Castillo & Diego Winkelried, 2007. "Dollarization Persistence and Individual Heterogeneity," Working Papers 2007-004, Banco Central de Reserva del Perú.
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- F30 - International Economics - - International Finance - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-01 (All new papers)
- NEP-FMK-2006-01-01 (Financial Markets)
- NEP-MAC-2006-01-01 (Macroeconomics)
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