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De-dollarizing the Peruvian Economy: A Portfolio Approach

  • Eduardo Morón

    ()

    (Departamento de Economía, Universidad del Pacífico)

  • Juan Castro

    ()

    (Departamento de Economía, Universidad del Pacífico)

"Financial dollarization creates design problems for economic policy as increases the level of financial vulnerability. However, countries with high levels of dollarization have done almost nothing to reduce it. In this paper we study two ways to do it and we evaluate them within a model that emphasizes a portfolio approach. We calibrate the model to replicate the Peruvian economy. The two policy options that we consider are: (i) increasing the risk of dollar deposits, reducing the level of coverage in the safety net mechanism; (ii) increasing the relative volatility of inflation vis-à-vis real depreciation. Our results show that the former has the potential risk of lowering the level of financial intermediation, whereas the second might be more effective to de-dollarize the economy."

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File URL: http://www.up.edu.pe/ciup/SiteAssets/Lists/JER_Jerarquia/EditForm/20060908152552_Dedollar_english%20DD.pdf
File Function: First Version, 2003
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Paper provided by Departamento de Economía, Universidad del Pacífico in its series Working Papers with number 03-01.

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Length: 31 pages
Date of creation: Jul 2003
Date of revision: Sep 2003
Handle: RePEc:pai:wpaper:03-01
Contact details of provider: Web page: http://www.up.edu.pe/

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  1. Gerardo Licandro & José Antonio Licandro, 2003. "Building the Dedollarization Agenda: Lessons from the Uruguayan Case," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 193-218, July-Dece.
  2. Eduardo Levy Yeyati & Alain Ize, 1998. "Dollarization of Financial Intermediation; Causes and Policy Implications," IMF Working Papers 98/28, International Monetary Fund.
  3. Christian Broda & Eduardo Levy Yeyati, 2003. "Endogenous Deposit Dollarization," Business School Working Papers dieciseis, Universidad Torcuato Di Tella.
  4. De Nicolo, Gianni & Honohan, Patrick & Ize, Alain, 2003. "Dollarization of the banking system : good or bad?," Policy Research Working Paper Series 3116, The World Bank.
  5. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  6. Eduardo Levy Yeyati, 2003. "Financial Dedollarization: A Carrot and Stick Approach," Business School Working Papers nueve, Universidad Torcuato Di Tella.
  7. Eduardo Moron & Diego Winkelried, 2002. "Monetary Policy Rules for Financially Vulnerable EconomieEd," Macroeconomics 0205001, EconWPA.
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