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Regional inflation and financial dollarisation

  • Martin Brown

    ()

    (Swiss Institute of Banking and Finance, University of St.Gallen)

  • Ralph De Haas

    ()

    (EBRD)

  • Vladimir Sokolov

    ()

    (Higher School of Economics)

In this paper, we exploit variation in consumer price inflation across 71 Russian regions to examine the relationship between the perceived stability of the local currency and financial dollarisation. Our results show that regions with higher inflation experience an increase in the dollarisation of household deposits and a decrease in the dollarisation of (long-term) household credit. The negative impact of inflation on credit dollarisation is weaker in regions with less integrated banking markets, suggesting that the asset-liability management of banks constrains the currency-portfolio choices of households.

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Paper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 163.

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Length: 22 pages
Date of creation: Nov 2013
Date of revision:
Publication status: Published in Working papers 163, European Bank for Reconstruction and Development
Handle: RePEc:ebd:wpaper:163
Contact details of provider: Postal: One Exchange Square, London EC2A 2JN
Web page: http://www.ebrd.com/pages/research/publications/workingpapers.shtml
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  1. Konstantin Gluschenko, 2010. "Price mobility of locations," Applied Economics Letters, Taylor & Francis Journals, vol. 17(1), pages 99-103, January.
  2. Shu Lin & Haichun Ye, 2013. "Does Inflation Targeting Help Reduce Financial Dollarization?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(7), pages 1253-1274, October.
  3. Eduardo Levy Yeyati, 2005. "Financial Dollarisation: Evaluating The Consequences," Business School Working Papers findollarisation, Universidad Torcuato Di Tella.
  4. Beck, Günter W. & Hubrich, Kirstin & Marcellino, Massimiliano, 2006. "Regional inflation dynamics within and across euro area countries and a comparison with the US," CFS Working Paper Series 2007/01, Center for Financial Studies (CFS).
  5. Alexei Karas & William Pyle & Koen Schoors, 2013. "Deposit Insurance, Banking Crises, and Market Discipline: Evidence from a Natural Experiment on Deposit Flows and Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(1), pages 179-200, 02.
  6. Guenter W. Beck & Kirstin Hubrich & Massimiliano Marcellino, 2009. "Regional inflation dynamics within and across euro area countries and a comparison with the United States," Economic Policy, CEPR;CES;MSH, vol. 24, pages 141-184, 01.
  7. Andrea Vaona & Guido Ascari, 2010. "Regional Inflation Persistence: Evidence from Italy," Working Papers 04/2010, University of Verona, Department of Economics.
  8. Valev, Neven T., 2010. "The hysteresis of currency substitution: Currency risk vs. network externalities," Journal of International Money and Finance, Elsevier, vol. 29(2), pages 224-235, March.
  9. Глущенко К.П., 2001. "Пространственное Поведение Уровней Цен," Журнал Экономика и математические методы (ЭММ), Центральный Экономико-Математический Институт (ЦЭМИ), vol. 37(3), июль.
  10. Guillermo A. Calvo, 2001. "Capital markets and the exchange rate with special reference to the dollarization debate in Latin America," Proceedings, Federal Reserve Bank of Cleveland, pages 312-338.
  11. Jose De Gregorio & Alberto Giovannini, 1993. "International Evidence on Tradables and Nontradable Inflation," NBER Working Papers 4438, National Bureau of Economic Research, Inc.
  12. Martin Brown & Ralph De Haas, 2012. "Foreign banks and foreign currency lending in emerging Europe," Economic Policy, CEPR;CES;MSH, vol. 27(69), pages 57-98, 01.
  13. Luca, Alina & Petrova, Iva, 2008. "What drives credit dollarization in transition economies?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 858-869, May.
  14. Winkelried, Diego & Castillo, Paul, 2010. "Dollarization persistence and individual heterogeneity," Journal of International Money and Finance, Elsevier, vol. 29(8), pages 1596-1618, December.
  15. Mian, Shehzad L., 1996. "Evidence on Corporate Hedging Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 419-439, September.
  16. Fuhrer, Jeff & Moore, George, 1995. "Inflation Persistence," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 127-59, February.
  17. Helmut Stix, 2012. "Why Do People Save in Cash? Distrust, Memories of Banking Crises, Weak Institutions and Dollarization," Working Papers 178, Oesterreichische Nationalbank (Austrian Central Bank).
  18. Boyd, John H. & Levine, Ross & Smith, Bruce D., 2001. "The impact of inflation on financial sector performance," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 221-248, April.
  19. repec:eee:deveco:v:99:y:2012:i:2:p:358-369 is not listed on IDEAS
  20. Brown, Martin & Ongena, Steven & Yesin, Pinar, 2011. "Foreign currency borrowing by small firms in the transition economies," Journal of Financial Intermediation, Elsevier, vol. 20(3), pages 285-302, July.
  21. Dan Galai & Zvi Wiener, 2012. "Credit Risk Spreads in Local and Foreign Currencies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 883-901, 08.
  22. Uribe, Martin, 1997. "Hysteresis in a simple model of currency substitution," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 185-202, September.
  23. Ize, Alain & Yeyati, Eduardo Levy, 2003. "Financial dollarization," Journal of International Economics, Elsevier, vol. 59(2), pages 323-347, March.
  24. Engineer, Merwan, 2000. "Currency transactions costs and competing fiat currencies," Journal of International Economics, Elsevier, vol. 52(1), pages 113-136, October.
  25. Nagayasu, Jun, 2011. "Heterogeneity and convergence of regional inflation (prices)," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 711-723.
  26. Basso, Henrique S. & Calvo-Gonzalez, Oscar & Jurgilas, Marius, 2007. "Financial dollarization: the role of banks and interest rates," Working Paper Series 0748, European Central Bank.
  27. Thaler, Richard H, 1990. "Saving, Fungibility, and Mental Accounts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 193-205, Winter.
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