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Dollarization and economic performance: What do we really know?

  • Sebastian Edwards

    (University of California, Los Angeles and National Bureau of Economic Research, USA)

  • I. Igal Magendzo

    (Central Bank of Chile, Chile)

In this paper we analyse the macroeconomic record of dollarized economies. In particular, we investigate whether, as its supporters claim, dollarization is associated with lower inflation and faster growth. We analyse this issue by using a matching estimator technique developed in the training evaluation literature. Our findings suggest that inflation has been significantly lower in dollarized nations than in non-dollarized ones. We also find that dollarized nations have had a lower rate of economic growth than non-dollarized ones. Finally, we find that macroeconomic volatility is not significantly different across dollarized and non-dollarized economies. We conjecture that the lower rate of economic growth in dollarized countries is due, at least in part, to these countries' difficulties in accommodating external disturbances, such as major terms of trade and capital flows shocks. Copyright © 2003 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 8 (2003)
Issue (Month): 4 ()
Pages: 351-363

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Handle: RePEc:ijf:ijfiec:v:8:y:2003:i:4:p:351-363
DOI: 10.1002/ijfe.217
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  1. Rose, Andrew K & Engel, Charles, 2002. "Currency Unions and International Integration," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(4), pages 1067-89, November.
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  8. Edwards, Sebastian, 2001. "Dollarization: Myths and realities," Journal of Policy Modeling, Elsevier, vol. 23(3), pages 249-265, April.
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