Convertibility risk, default risk, and the Mexdollar anomaly
Rogers (l992a,b) I put forth the convertibility risk hypothesis in order to explain the anomalous n~gative relationship between the expected rate of Mexican peso depreciation and the ratio of Mexdollars to peso denominated demand deposits. Recently, Gruben and Welch (1994) examine the effect of deteriorating bank loan quality on the variables I consider. Using a cointegration framework, the authors find (i) a negative relationship between non-performing loans and the dollarization ratio and (ii) the conventional positive relationship between expected peso depreciation and dollarization. The first result suggests an additional factor influencing money demand in Mexico. The second result is evidence against my convertibility risk hypothesis. Further analysis indicates that there is some evidence in favor of Gruben and Welch's first result, but that the preponderance of evidence runs counter to their second result.
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| Date of creation: | 1995 |
| Handle: | RePEc:fip:fedgif:495 |
| Contact details of provider: | Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551 Web page: http://www.federalreserve.gov/ More information through EDIRC
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References listed on IDEAS
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- Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-472, August.
- Perron, Pierre, 1989.
"The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis,"
Econometrica,
Econometric Society, vol. 57(6), pages 1361-1401, November.
- Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
- Rogers, John H, 1992. "The Currency Substitution Hypothesis and Relative Money Demand in Mexico and Canada," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(3), pages 300-318, August.
- Rogers, J.H., 1990. "The Currency Substitution Hypothesis And Relative Money Demand In Mexico And Canada," Papers 7-90-1, Pennsylvania State - Department of Economics.
- Rogers, John H., 1992. "Convertibility risk and dollarization in Mexico: a vectorautoregressive analysis," Journal of International Money and Finance, Elsevier, vol. 11(2), pages 188-207, April.
- Cheung, Yin-Wong & Lai, Kon S, 1993. "Finite-Sample Sizes of Johansen's Likelihood Ration Tests for Conintegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(3), pages 313-328, August. Full references (including those not matched with items on IDEAS)
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