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Dollarization and default risk: a brief note

Author

Listed:
  • Emilio Ocampo
  • Nicolás Cachanosky

Abstract

In this brief note, we evaluate the conclusions of a recent paper by Lopez Almirante and Neumeyer (2024). Simulations of a well-known model calibrated for Ecuador led them to conclude that dollarization can lead to a higher probability of a sovereign default and that only a high inflation rate would make it a welfare enhancing option for a non-dollarized economy. We find data misspecification and erroneous assumptions invalidate the results of the analysis.

Suggested Citation

  • Emilio Ocampo & Nicolás Cachanosky, 2024. "Dollarization and default risk: a brief note," CEMA Working Papers: Serie Documentos de Trabajo. 871, Universidad del CEMA.
    • Handle: RePEc:cem:doctra:871
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    File URL: https://ucema.edu.ar/sites/default/files/2024-06/dt871.pdf
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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