Financial dollarization: the role of banks and interest rates
This paper develops a model to explain the determinants of financial dollarization. Expanding on the existing literature, our framework allows interest rate differentials to play a role in explaining financial dollarization. It also accounts for the increasing presence of foreign banks in the local financial sector. Using a newly compiled data set on transition economies we find that increasing access to foreign funds leads to higher credit dollarization, while it decreases deposit dollarization. Interest rate differentials matter for the dollarization of both loans and deposits. Overall, the empirical results lend support to the predictions of our theoretical model. JEL Classification:
|Date of creation:||May 2007|
|Date of revision:|
|Contact details of provider:|| Postal: 60640 Frankfurt am Main, Germany|
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/
More information through EDIRC
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.:
- Olivier D Jeanne, 2003.
"Why Do Emerging Economies Borrow in Foreign Currency?,"
IMF Working Papers
03/177, International Monetary Fund.
- Jeanne, Olivier, 2003. "Why Do Emerging Economies Borrow in Foreign Currency?," CEPR Discussion Papers 4030, C.E.P.R. Discussion Papers.
- Adolfo Barajas & Armando MÃ©ndez Morales, 2003. "Dollarization of Liabilities; Beyond the Usual Suspects," IMF Working Papers 03/11, International Monetary Fund.
- Alain Ize, 2005. "Financial Dollarization Equilibria; A Framework for Policy Analysis," IMF Working Papers 05/186, International Monetary Fund.
- Ize, Alain & Yeyati, Eduardo Levy, 2003. "Financial dollarization," Journal of International Economics, Elsevier, vol. 59(2), pages 323-347, March.
- James R. Barth & Gerard Caprio, Jr. & Ross Levine, 2002.
"Bank Regulation and Supervision: What Works Best?,"
NBER Working Papers
9323, National Bureau of Economic Research, Inc.
- Barth, James R. & Caprio Jr., Gerard & Levine, Ross, 2001. "Bank regulation and supervision : what works best?," Policy Research Working Paper Series 2725, The World Bank.
- Marco Terrones & Luis CatÃ£o, 2000. "Determinants of Dollarization; The Banking Side," IMF Working Papers 00/146, International Monetary Fund.
- Ralph de Haas & Ilko Naaborg, 2005. "Internal Capital Markets in Multinational Banks: Implications for European Transition Countries," DNB Working Papers 051, Netherlands Central Bank, Research Department.
When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20070748. 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: (Official Publications)
If references are entirely missing, you can add them using this form.