Advanced Search
MyIDEAS: Login to save this paper or follow this series

Dollarization Persistence and Individual Heterogeneity

Contents:

Author Info

  • Paul Castillo

    (London School of Economics & Central bank of Peru)

  • Diego Winkelried

    (St John�s College, University of Cambridge)

Abstract

The 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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://128.118.178.162/eps/mac/papers/0512/0512014.pdf
Download Restriction: no

Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0512014.

as in new window
Length: 25 pages
Date of creation: 21 Dec 2005
Date of revision: 31 Dec 2005
Handle: RePEc:wpa:wuwpma:0512014

Note: Type of Document - pdf; pages: 25
Contact details of provider:
Web page: http://128.118.178.162

Related research

Keywords: Dollarization; individual heterogeneity; persistence; aggregation;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Michelacci, Claudio, 2004. "Cross-Sectional Heterogeneity and the Persistence of Aggregate Fluctuations," CEPR Discussion Papers 4302, C.E.P.R. Discussion Papers.
  2. Eduardo Levy-Yeyati, 2004. "FINANCIAL DOLLARIZATION: Evaluating the consequences," Econometric Society 2004 Latin American Meetings 184, Econometric Society.
  3. Quispe Misaico, Zenon, 2000. "Monetary policy in a dollarised economy: The case of Peru," MPRA Paper 35530, University Library of Munich, Germany.
  4. Eduardo Morón & Diego Winkelried, 2003. "Monetary Policy Rules for Financially Vulnerable Economies," IMF Working Papers 03/39, International Monetary Fund.
  5. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  6. Zaffaroni, Paolo, 2004. "Contemporaneous aggregation of linear dynamic models in large economies," Journal of Econometrics, Elsevier, vol. 120(1), pages 75-102, May.
  7. Aoki, Kosuke, 2003. "On the optimal monetary policy response to noisy indicators," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 501-523, April.
  8. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Addicted to Dollars," NBER Working Papers 10015, National Bureau of Economic Research, Inc.
    • Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Addicted to Dollars," CEMA Working Papers 594, China Economics and Management Academy, Central University of Finance and Economics.
  9. Pablo E. Guidotti & Carlos A. Rodriguez, 1992. "Dollarization in Latin America: Gresham's Law in Reverse?," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 518-544, September.
  10. Nicolo, Gianni De & Honohan, Patrick & Ize, Alain, 2005. "Dollarization of bank deposits: Causes and consequences," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1697-1727, July.
  11. Antonio Garcia Pascual & Jorge Cayazzo & Socorro Heysen & Eva Gutierrez, 2006. "Toward An Effective Supervision of Partially Dollarized Banking Systems," IMF Working Papers 06/32, International Monetary Fund.
  12. Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2000. "A New Database on the Structure and Development of the Financial Sector," World Bank Economic Review, World Bank Group, vol. 14(3), pages 597-605, September.
  13. Arteta Carlos O., 2005. "Exchange Rate Regimes and Financial Dollarization: Does Flexibility Reduce Currency Mismatches in Bank Intermediation?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-30, May.
  14. Lewbel, Arthur, 1994. "Aggregation and Simple Dynamics," American Economic Review, American Economic Association, vol. 84(4), pages 905-18, September.
  15. Baillie, Richard T., 1996. "Long memory processes and fractional integration in econometrics," Journal of Econometrics, Elsevier, vol. 73(1), pages 5-59, July.
  16. Arifovic, Jasmina, 1996. "The Behavior of the Exchange Rate in the Genetic Algorithm and Experimental Economies," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 510-41, June.
  17. Martin Uribe, 1995. "Hysteresis in a simple model of currency substitution," International Finance Discussion Papers 509, Board of Governors of the Federal Reserve System (U.S.).
  18. Miguel A. Savastano, 1996. "Dollarization in Latin America," IMF Working Papers 96/4, International Monetary Fund.
  19. Agenor, Pierre-Richard & Haque, Nadeem U, 1996. "Macroeconomic Management with Informal Financial Markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(2), pages 87-101, April.
  20. Luis Felipe Céspedes & Roberto Chang & Andrés Velasco, 2004. "Balance Sheets and Exchange Rate Policy," American Economic Review, American Economic Association, vol. 94(4), pages 1183-1193, September.
  21. Sturzenegger, Federico, 1997. "Understanding the welfare implications of currency substitution," Journal of Economic Dynamics and Control, Elsevier, vol. 21(2-3), pages 391-416.
  22. Kamin, Steven B. & Ericsson, Neil R., 2003. "Dollarization in post-hyperinflationary Argentina," Journal of International Money and Finance, Elsevier, vol. 22(2), pages 185-211, April.
  23. Hashem Pesaran, M., 2003. "Aggregation of linear dynamic models: an application to life-cycle consumption models under habit formation," Economic Modelling, Elsevier, vol. 20(2), pages 383-415, March.
  24. Cook, David, 2004. "Monetary policy in emerging markets: Can liability dollarization explain contractionary devaluations?," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1155-1181, September.
  25. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  26. repec:rus:hseeco:124089 is not listed on IDEAS
  27. repec:rus:hseeco:123906 is not listed on IDEAS
  28. Granger, C. W. J., 1980. "Long memory relationships and the aggregation of dynamic models," Journal of Econometrics, Elsevier, vol. 14(2), pages 227-238, October.
  29. Ize, Alain & Yeyati, Eduardo Levy, 2003. "Financial dollarization," Journal of International Economics, Elsevier, vol. 59(2), pages 323-347, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Paul Castillo & Alberto Humala & Vicente Tuesta, 2007. "Monetary Policy, Regime Shifts, and Inflation Uncertainty in Peru (1949-2006)," Working Papers 2007-005, Banco Central de Reserva del Perú.
  2. Brown, Martin & De Haas, Ralph & Sokolov, Vladimir, . "Regional Inflation and Financial Dollarization," Working Papers on Finance 1327, University of St. Gallen, School of Finance.
  3. Carlos Eduardo León Rincón & Alejandro Reveiz Herault, 2008. "La dolarización financiera:Experiencia internacional y perspectivas para Colombia," BORRADORES DE ECONOMIA 004510, BANCO DE LA REPÚBLICA.
  4. Sanchez Alan, 2006. "Financial Dollarization, the portfolio approach and expectations: evidence for Latin America (1995-2005)," Working Papers 2006-010, Banco Central de Reserva del Perú.
  5. Winkelried, Diego, 2013. "Modelo de Proyección Trimestral del BCRP: Actualización y novedades," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 26, pages 9-60.
  6. Rossini, Renzo & Quispe, Zenón & Rodríguez, Donita, 2013. "Flujo de capitales, política monetaria e intervención cambiaria en el Perú," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 25, pages 39-50.
  7. Brown, M. & Haas, R. de & Sokolov, V., 2013. "Regional Inflation and Financial Dollarization," Discussion Paper 2013-073, Tilburg University, Center for Economic Research.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:0512014. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.