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Is Loan Dollarization Contagious across Countries? Evidence from Transition Economies

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  • Kyriakos C. Neanidis
  • Christos S. Savva

Abstract

We examine whether credit dollarization is contagious across countries with widely different experiences of the phenomenon and, if so, what factors contribute to such spillover effects. We analyse a unique monthly data set of credit dollarization for 23 transition economies. We proceed in two steps. First, we use a flexible bivariate regimeswitching model to simultaneously test for shift contagion and bi-directional pure contagion between high-dollarized and low-dollarized countries. We document widespread evidence of both shift and pure contagion in credit dollarization, the latter moving in both directions. Second, a multivariate analysis identifies the factors that promote pure contagion to be associated with (i) geographical proximity between countries, (ii) a common institutional environment within the EU, (iii) greater trade and banking connectivity, and (iv) the economic size of the country where contagion originates from.

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  • Kyriakos C. Neanidis & Christos S. Savva, 2015. "Is Loan Dollarization Contagious across Countries? Evidence from Transition Economies," Centre for Growth and Business Cycle Research Discussion Paper Series 200, Economics, The University of Manchester.
  • Handle: RePEc:man:cgbcrp:200
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    1. Kyriakos C. Neanidis & Christos S. Savva, 2018. "Regional Spillovers in Financial Dollarization," Centre for Growth and Business Cycle Research Discussion Paper Series 238, Economics, The University of Manchester.
    2. Nilgun Caglarirmak Uslu & Sevcan Kapkara, 2019. "The Determinants of Credit Dolarization: Turkish Case," Economics Literature, WERI-World Economic Research Institute, vol. 1(2), pages 148-167, December.
    3. Ongena, Steven & Schindele, Ibolya & Vonnák, Dzsamila, 2021. "In lands of foreign currency credit, bank lending channels run through?," Journal of International Economics, Elsevier, vol. 129(C).

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