Dollarization hysteresis, network externalities and the “past legacy” effect: the case of Bolivia
Dollarization in Bolivia rose rapidly immediately after the hyperinflation and currency crisis episode that took place between 1984 and 1985, but failed to reduce and, in fact, continued increasing the following years. In order to explain this dollarization hysteresis, this document proposes and estimates a model, based in the work of Oomes (2003), where network externalities can generate multiple steady-states for dollarization while a so-called past legacy effect increases the likelihood of ending up in a high-dollarization steady-state. The empirical procedure utilizes a more adequate measure of dollarization than the deposit-based ratio, by taking into account a direct estimate of the USD currency holdings in Bolivia thanks to a new source of data. While the empirical results tend to confirm a strong significance of the past legacy effect in this country, the evidence in favour of network externalities seems to rely heavily in the incidence of the past legacy effect over the agents´ formation of exchange rate expectations. Given these results, the document discusses some exchange rate policy implications.
(This abstract was borrowed from another version of this item.)
Volume (Year): XXX (2007)
Issue (Month): 2 (marzo-abril)
|Contact details of provider:|| Postal: Durango 54, Col. Roma, México D. F., 06700|
Phone: 52 (55) 5061 6680
Web page: http://www.cemla.org
More information through EDIRC
|Order Information:|| Web: http://www.cemla.org Email: |
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.:
- Joannes Mongardini & Johannes Mueller, 1999.
"Rachet Effects in Currency Substitution; An Application to the Kyrgyz Republic,"
IMF Working Papers
99/102, International Monetary Fund.
- Joannes Mongardini & Johannes Mueller, 2000. "Ratchet Effects in Currency Substitution: An Application to the Kyrgyz Republic," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 3.
- Bettina Peiers & Jeffrey M. Wrase, 1997. "Dollarization hysteresis and network externalities: theory and evidence from an informal Bolivian credit market," Working Papers 97-21, Federal Reserve Bank of Philadelphia.
- Melvin, Michael, 1988. "The Dollarization of Latin America as a Market-Enforced Monetary Reform: Evidence and Implications," Economic Development and Cultural Change, University of Chicago Press, vol. 36(3), pages 543-58, April.
- Melvin, Michael & de la Parra, Gonzalo Afcha, 1989. "Dollar currency in Latin America : A Bolivian application," Economics Letters, Elsevier, vol. 31(4), pages 393-397, December.
- Nienke Oomes, 2003. "Network Externalities and Dollarization Hysteresis; The Case of Russia," IMF Working Papers 03/96, International Monetary Fund.
- Paul Hallwood & Ian W. Marsh & Joerg Scheibe, 2004. "An Assessment of the Case for Monetary Union or Official Dollarization in Argentina, Brazil, Chile, Uruguay and Venezuela," Working papers 2004-13, University of Connecticut, Department of Economics.
- Edgar Feige & James Dean, 2002. "Dollarization and Euroization in Transition Countries: Currency Substitution, Asset Substitution, Network Externalities and Irreversibility," International Finance 0205003, EconWPA.
- Robert Mundell, 2000.
"Currency Areas, Exchange Rate Systems and International Monetary Reform,"
Journal of Applied Economics,
Universidad del CEMA, vol. 0, pages 217-256, November.
- Robert Mundell, 2000. "Currency Areas, Exchange Rate Systems and International Monetary Reform," CEMA Working Papers: Serie Documentos de Trabajo. 167, Universidad del CEMA.
- Alejandro Izquierdo, 2002. "Sudden Stops, the Real Exchange Rate and Fiscal Sustainability in Argentina," The World Economy, Wiley Blackwell, vol. 25(7), pages 903-923, 07.
When requesting a correction, please mention this item's handle: RePEc:cml:moneta:v:xxx:y:2007:i:2:p:167-217. 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: (Ana Laura Sibaja-Jiménez)
If references are entirely missing, you can add them using this form.