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Dollarization of deposits in short and long run: evidence from CESE countries

Author

Listed:
  • Ivana Rajkoviæ

    (National Bank of Serbia)

  • Branko Uroseviæ

    (National Bank of Serbia)

Abstract

We study drivers of permanent and transitory deposit dollarization on a sample of CESE countries using panel cointegration techniques. The results suggest that a positive cointegration relationship exists between permanent dollarization and minimum variance portfolio (MVP) share. This provides additional empirical validation of MVP method as the standard tool for analysing financial dollarization in the long run. In the long run agents make savings decisions based on relative volatilities of inflation and nominal depreciation rates and do not take into the account interest rate spread. In the short run dollarization exhibits persistence. Somewhat different factors affect dollarization in the short than in the long run. Namely, apart from MVP share, dollarization of deposits is in that case driven, also, by interest rate spread and nominal exchange rate movements. Our results suggest that affecting dollarization through change in the interest rate spread may have short term impact on dollarization. In the long run, however, for de-dollarization it is critical to reduce volatility of inflation compared to volatility of exchange rate depreciation.

Suggested Citation

  • Ivana Rajkoviæ & Branko Uroseviæ, 2014. "Dollarization of deposits in short and long run: evidence from CESE countries," Working papers 28, National Bank of Serbia.
  • Handle: RePEc:nsb:wpaper:28
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    References listed on IDEAS

    as
    1. Elisabeth Beckmann & Sandra Dvorsky & Thomas Scheiber, 2011. "OeNB Euro Survey: Growing Uncertainty, but Overall Euroization Not Affected," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 88-99.
    2. Winkelried, Diego & Castillo, Paul, 2010. "Dollarization persistence and individual heterogeneity," Journal of International Money and Finance, Elsevier, vol. 29(8), pages 1596-1618, December.
    3. Emre Ozsoz & Erick W. Rengifo & Dominick Salvatore, 2008. "Dollarization as an Investment Signal in Developing Countries: The Case of Croatia, Czech Republic, Peru, Slovak Republic and Turkey," Fordham Economics Discussion Paper Series dp2008-16, Fordham University, Department of Economics.
    4. Thomas Scheiber & Helmut Stix, 2009. "Euroization in Central, Eastern and Southeastern Europe – New Evidence On Its Extent and Some Evidence On Its Causes," Working Papers 159, Oesterreichische Nationalbank (Austrian Central Bank).
    5. Basso, Henrique S. & Calvo-Gonzalez, Oscar & Jurgilas, Marius, 2011. "Financial dollarization: The role of foreign-owned banks and interest rates," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 794-806, April.
    6. Marina Tkalec, 2013. "Monetary Determinants of Deposit Euroization in European Post-Transition Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(1), pages 89-101, March.
    7. repec:onb:oenbfi:y:2011:i:4:b:4 is not listed on IDEAS
    8. Carlos O. Arteta, 2002. "Exchange rate regimes and financial dollarization: does flexibility reduce bank currency mismatches?," International Finance Discussion Papers 738, Board of Governors of the Federal Reserve System (U.S.).
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Permanent and transitory dollarization; Transition economies;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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