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Financial Dollarization: Short-Run Determinants in Transition Economies

  • Kyriakos C. Neanidis
  • Christos S. Savva

This paper examines the determinants of financial dollarization in transition economies from a short-run perspective. Using monthly data of deposit and loan dollarization we study the drivers of short-term fluctuations in dollarization and test their importance at different levels of dollarization. The results provide evidence that (a) the positive short-run effects of depreciation on deposit dollarization are exacerbated in high-dollarization countries; (b) short-run loan dollarization is mainly driven by banks matching of domestic loans and deposits, international financial integration, and institutional quality; and (c) both types of dollarization are affected by interest rate differentials and deviations from desired dollarization.

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File URL: http://www.socialsciences.manchester.ac.uk/medialibrary/cgbcr/discussionpapers/dpcgbcr113.pdf
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Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 113.

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Length: 42 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:man:cgbcrp:113
Contact details of provider: Postal: Manchester M13 9PL
Phone: (0)161 275 4868
Fax: (0)161 275 4812
Web page: http://www.socialsciences.manchester.ac.uk/subjects/economics/our-research/centre-for-growth-and-business-cycle-research/

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  1. Fabio Fornari & Antonio Mele, 1997. "Asymmetries and non-linearities in economic activity," Applied Financial Economics, Taylor & Francis Journals, vol. 7(2), pages 203-206.
  2. Arteta Carlos O., 2005. "Exchange Rate Regimes and Financial Dollarization: Does Flexibility Reduce Currency Mismatches in Bank Intermediation?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-30, May.
  3. 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.
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  15. Marco Terrones & Luis Catão, 2000. "Determinants of Dollarization; The Banking Side," IMF Working Papers 00/146, International Monetary Fund.
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  17. Bertus, Mark & Jahera Jr., John S. & Yost, Keven, 2008. "A note on foreign bank ownership and monitoring: An international comparison," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 338-345, February.
  18. Luca, Alina & Petrova, Iva, 2008. "What drives credit dollarization in transition economies?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 858-869, May.
  19. Martin Uribe, 1995. "Hysteresis in a simple model of currency substitution," International Finance Discussion Papers 509, Board of Governors of the Federal Reserve System (U.S.).
  20. Christoph B. Rosenberg & Marcel Tirpák, 2008. "Determinants of Foreign Currency Borrowing in the New Member States of the EU," IMF Working Papers 08/173, International Monetary Fund.
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